As Indian and U.S. officials engaged in closed-door negotiations to finalise trade deals ahead of July’s tariff hikes, a parallel development added friction to an already delicate situation. The Trump administration formally rejected India’s request for consultations at the World Trade Organization (WTO)—its second such attempt—this time over the steep 25 per cent tariff on auto parts.
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The juxtaposition of collaborative trade discussions and WTO resistance has triggered a wave of speculation about Washington’s real intentions. While on one hand, Trump has defended its position by citing national security grounds, which exempts the tariff from WTO jurisdiction, on the other, he has expressed his willingness to hold one-on-one discussions with India on the auto component tariffs, albeit with the condition that the talks take place outside the framework of the WTO’s Agreement on Safeguards.
Meanwhile, India has also reserved the right to impose retaliatory tariffs on US automobile imports, according to an official from India’s Commerce Ministry.
Stakes in India’s auto component sector
For India, the stakes are high. The auto component industry has emerged as a significant pillar of the nation’s economy, contributing 2.3 per cent to the GDP and directly employing 1.5 million people. With a turnover of INR 6.14 lakh crore (USD 74.1 billion) in FY2024, the sector has clocked a healthy CAGR of 8.63 per cent since FY2016. Exports account for 18 per cent of the total output, with North America alone receiving USD 6.8 billion worth of shipments—27 per cent of India’s total auto component exports in FY2024, according to the Auto Component Manufacturers Association (ACMA).
In 2023, India exported a total of USD 20.1 billion worth of auto components globally, among which North America held USD 6.50 billion, representing a total of 32 per cent of the total export volume. With reference to the same source, in 2022, India’s total exports of auto components were USD 19 billion, of which North America accounted for USD 6 billion, representing 46 per cent of the total export volume.
Given these figures, India’s concern over the 25 per cent tariff is legitimate. But India's advantage is its low-cost manufacturing, meaning the actual impact on producers may be modest. Instead, the immediate effect may be felt by U.S. automakers and consumers through higher vehicle prices.
The China factor: A tariff with broader implications
A deeper look at the numbers further complicates the US position. China, the largest auto component exporter to the United States, shipped parts worth USD 13.9 billion in 2024, more than double India’s USD 6.8 billion. The value was USD 11 billion in 2023 and USD 10 billion in 2022, according to data from the China Association of Automobile Manufacturers (CAAM). Given this disparity, it raises an important question: How can the same 25 per cent tariff be uniformly applied to nations with vastly different export volumes and trade leverage?
By imposing the same tariff on India as on China, the US risks undermining a potential counterweight in Asia. Unlike China, India is increasingly seen as a strategic trade and manufacturing ally. Applying blanket protectionist measures may jeopardise the momentum of India’s auto industry, which is poised to play a growing role in the global automotive supply chain.
Summing up
India’s diversified export base, growing domestic demand, and cost efficiency is expected to slightly cushion the blow. The US, on the other hand, gains leverage but risks alienating a crucial partner at a time when reducing overreliance on Chinese imports is a key strategic goal.
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