A report by Goldman Sachs has highlighted the potential impact of US tariffs on India's gross domestic product (GDP). The report suggests that India's GDP could be affected by 0.1 to 0.6 percentage points if the US administration, under President Donald Trump, decides to increase tariffs on all US imports to match the average tariff differential between India and the US.
“India's domestic activity exposure to US final demand would be roughly twice as high (4.0 per cent of GDP) given exposure to the US via exports to other countries, and would likely result in a potential domestic GDP growth impact of 0.1-0.6pp,” the report stated.
The report further explains that under product-level reciprocity, where tariff rates on each product are matched with those levied by trading partners, the weighted average effective US tariff rate on Indian imports could rise by 6.5 to 11.5 percentage points. This increase would depend on the kind of reciprocal tariff plan adopted by the US.
“India’s domestic value added content in gross exports at ~4.0 per cent of GDP is roughly in the middle among its Asian peers. Under this metric the potential domestic GDP growth impact (from a 6.5-11.5pp increase in US average effective tariff rates) would likely range from ~0.1-0.6pp,” stated the report.
Goldman Sachs also noted that non-tariff barriers, such as import licences and export subsidies, present a complex challenge. These barriers are difficult to estimate for each trading partner, leading the report to focus solely on tariff-related barriers. India's exports to the US currently represent around 2 per cent of its GDP, which is relatively low compared to other emerging markets. Despite this, higher US tariffs could still significantly impact India's domestic economy.
The report adds that if the US applies global tariffs on all countries, the impact on India would be more substantial. This scenario would likely increase India's exposure to US final demand to approximately 4 per cent of GDP, due to India's exports to other countries that, in turn, export to the US.
India's bilateral goods trade surplus with the US has doubled over the last decade, reaching $35 billion (1 per cent of India's GDP) in FY24. This growth has been primarily driven by electronics, pharmaceutical products, and textiles. India's tariff rates are generally higher than those of the US on most products, especially in agricultural products, textiles, and pharmaceuticals.
President Trump has emphasised a new trade policy focused on fairness and reciprocity, stating that the US would implement reciprocal tariffs to charge other countries the same tariffs they impose on American goods.