Tariffs, tensions, trade-offs: New world order for Indian exports

As protectionist trade policies reshape global supply chains, Indian exporters—especially in the automotive and pharmaceutical sectors—are navigating a fragile yet potentially transformative moment. With US tariff hikes looming and the China-US trade standoff deepening, India is both exposed to new risks and primed for unique opportunities. Industry leaders are weighing the costs of rising duties, the prospects of market diversification, and India’s ability to compete not just on price but on value and scale. From generic drugs to engine components, the story of India’s exports in 2025 is one of recalibration, resilience, and readiness in the face of a shifting global order.

According to GEP’s Outlook Report 2025 Procurement & Supply Chain, the global trade landscape is undergoing a fundamental shift.

“For years, globalisation and free trade dominated strategic thinking, allowing companies to maximise efficiency by leveraging low-cost production hubs around the world. However, emerging trade barriers threaten to disrupt this established approach,” the report states.

For supply chain and procurement leaders, this changing environment means they must rethink traditional models. “A future shaped by protectionist trade policies, tariffs and increased regulatory scrutiny will demand a more agile, resilient and forward-thinking approach to supply chain management.”

Monique Giese, Global Head of Shipping at KPMG in Germany, highlights the shifting dynamics in global trade as outlined in the 2025 edition of The Great Reset: Emerging trends in infrastructure and transport by KPMG.

“Tariffs and trade barriers tend to reduce global demand for shipping. At the very least, they add to the complexity and friction of global trade. Volume growth may no longer be a given for shipping lines,” she notes.

She further explains how these pressures could fundamentally alter the architecture of global supply chains: “One might also anticipate that global supply chains are about to become significantly disrupted as companies rewire their value chains to address new tariff risks and costs. For some, that will mean significant near-shoring to their largest customer bases. Others may look to new export markets, causing shipping lanes to be redrawn and demand for new ports and operators to grow.”

The recent hike in US import tariffs is poised to create a significant financial strain on, for instance, Indian auto component exporters, with estimated earnings losses ranging between ₹2,700 crore and ₹4,500 crore, according to credit rating agency ICRA’s April 2025 report. The increased duties, though on hold, could erode 3–6% of the operating profits for the overall industry and as much as 10–15% for exporters.

The actual impact will hinge on how much of the incremental costs can be passed on to buyers. While most Indian suppliers are attempting to transfer the added burden to customers, the success of such efforts varies based on multiple factors.

“The extent of pass-through would depend on the supplier’s criticality, share of business, competition, and technological intensity of the components supplied,” Shamsher Dewan, Senior Vice President and Head – Corporate Ratings Group, ICRA, wrote in the report.

If Indian exporters are forced to absorb even 30–50% of the added costs, it would substantially weigh down profit margins. ICRA estimates this could result in a 150–250 basis point drop in margins for exporters in FY2026. Dewan noted that select Indian firms with manufacturing facilities in the US may remain insulated from these cost pressures, but they are in the minority.

He cautioned that the new tariffs arrive amid an already uncertain global economic environment. “Decline of automobile sales volumes and tepidness in the replacement market in the US remain the key downside risks,” Dewan added. Additionally, pricing pressure could intensify in other key markets such as Europe and Asia due to rising competition from Chinese suppliers.

“With China facing higher tariffs and potential trade restrictions, Indian suppliers can capture a larger share of the US market, especially if India and the US reach a favourable settlement on tariffs.”
Om Vijayvargiya, Schaeffler India

While the US tariff announcements have raised concerns, industry leaders believe the real impact is yet to unfold.

“There is no immediate impact on Indian automotive exports to the USA,” said Om Vijayvargiya, Head – SCM & Logistics, Schaeffler India. “Although a 10% increase in customs duty was announced, its implementation has been postponed for 90 days. Indian automotive exports, including vehicles and auto components, continue as usual.”

“The Indian government is actively negotiating with US authorities to resolve the tariff issue,” Vijayvargiya noted. However, he added a word of caution: “If the additional duty is imposed after 90 days and no resolution is reached, some impact is expected, but the extent will depend on future developments.”

In terms of comparative disadvantage, Vijayvargiya believes the playing field remains relatively level. “If the 10% tariff is implemented, its impact will be uniform across all exporting countries, as the US has applied the same rate to all major automotive exporters, including Vietnam, Thailand, and Bangladesh,” he explained.

But the outcome may hinge on how price dynamics evolve in the US market. “The real impact will depend on whether US-made components become cheaper than imports after the tariff. If Indian parts remain cost-competitive, exports may not decline significantly,” he said. “The tariff is applied equally to all types of automotive components, so no specific material or part is disproportionately affected.”

Interestingly, amid the uncertainties, there are glimmers of opportunity, particularly stemming from the prolonged trade friction between the US and China. “Yes, the ongoing US-China tariff tensions present a significant opportunity for Indian exporters,” Vijayvargiya affirmed. “With China facing higher tariffs and potential trade restrictions, Indian suppliers can capture a larger share of the US market, especially if India and the US reach a favourable settlement on tariffs.”

He added, “Indian authorities are actively engaging with their US counterparts to resolve these issues and expand market access.”

“In automotive, what makes sense for us is where we add more value, which is the engines and transmission components, which are heavier and have higher value addition compared to the raw material cost.”
Mandar Vaidya, ZF Group

According to Mandar Vaidya, Director – Materials Management, Region India at ZF Group, the opportunity is clear—but so are the challenges.

“The US will have to kick-start development or revamp their manufacturing industry,” said Vaidya. “They will have to start, in some cases, with setting up manufacturing bases, and then we can start production. People have to be ready to do those things. If people are not ready, then they'll have to put in automations or robotics, which is also a further investment and takes time.”

When asked how dependent the US currently is on the Indian automotive industry, Vaidya responded candidly: “Not too much. But you have a huge gap there if we compare ourselves with China. That is why I was looking at that as an opportunity to grow exports.”

On whether India could capitalise on the growing US-China trade rift, he added, “Yes, I would wait and watch that.”

However, Vaidya is clear that India must play to its strengths. “In automotive, what makes sense for India is not on the stamped components or panels. What makes sense for us is where we add more value, which is the engines and transmission components,” he explained. “If you look at panels, they are voluminous parts, so transport costs would be a negative contributor to our competitiveness. Focus on components which are heavier and have higher value addition compared to the raw material cost—engine components and transmission components fit in here. The arbitrage for India would be better in those cases.”

When it comes to India’s readiness to seize these opportunities, Vaidya was cautiously optimistic. “Indian suppliers are quite stable financially right now, and most of them want to grow further, expand their footprint not only within India but also globally, and are looking at inorganic expansions to get into different product lines.”

But he also pointed to systemic weaknesses that could hamper progress. “What we lack is the scalability that China has. We always look at what the returns are; we have to have a positive business case before we invest. In China, they are ready to put in capacities and capabilities in anticipation of demand. So, when the volumes are ready to come in, they're ready. We, on the other hand, take one year, one and a half years, to get ready.”

On the strategic importance of the US market for Indian exporters, Vaidya is pragmatic. “We can grow significantly in the US market. They have too much dependency on China right now, and they would like to reduce it if given a choice. Even if tariffs are not there, they understand they have to depend on China right now.”

However, he cautioned that India is not the only alternative. “When people say China plus one, they are not saying China plus India; India could be one of the options, but Southeast Asia, Vietnam, Malaysia—they have their own pockets of excellence.”

“Prices from Indian pharma manufacturing firms are already competitive, especially in the generic space. Typically, these products, which go off patent, we manufacture at the best cost.”
Vijay Shetty, Alkem Laboratories

As global trade dynamics shift and uncertainty clouds Indian pharmaceutical exports as well, especially to key markets like the US, Vijay Shetty, Senior Vice President – Global Distribution and Supply Chain at Alkem Laboratories, remains cautiously optimistic. Shetty underlined that while tariff threats loom, practical constraints and shared economic interests may keep drastic moves in check.

He questioned the viability of such tariffs. “For the US to put a tariff on Indian pharmaceutical exports would not be that practical. One of the reasons is that the prices from Indian manufacturing organisations are already competitive, especially in the generic space. Typically, these products, which go off patent, we manufacture at the best cost, and that’s how the country benefits.”

Shetty pointed out the immense savings the US reaps from Indian generics. “Out of the 10 prescriptions prescribed in the US, a minimum of four to five medicines are India-made. If the same is manufactured by a multinational, the prices would be much higher.”

If tariffs are levied, he warned, the consequences would ripple across the supply chain. “The US importers are the ones who would get impacted more. The price will increase, and even if we absorb 50% of that increased tariff, it would not be viable for Indian manufacturers to produce many products.”

He added, “They may decide not to manufacture those products, which would impact the demand for Indian manufactured quality products in the US. Is China going to fill that gap? We already know about the trust and quality issues with products coming from China. That’s why India has an edge.”

According to Shetty, the US remains a vital market. “Since the last three to four years, the US has been a big market in terms of value. For many Indian pharma companies, up to 40% of revenue comes from the US.”

However, he acknowledged that the pricing landscape has changed significantly. “With distributor consolidation in the US, things have become more competitive, leading to a price war.”

“Now you look at volume growth to recover the original sales,” he said, noting that while the opportunity in volume remains, the pressure on margins is intense.

Shetty also observed a shift toward greater participation. “Earlier, there were few dominant Indian pharma companies in the US; now there are many.”

Amid this pricing pressure and geopolitical uncertainty, Indian pharma firms are expanding their horizons. “Diversification is taking place,” said Shetty. “In the last three to five years, almost all pharma companies have been looking at other markets. Europe is another big region, Africa as well, and the rest of the world—GCC countries, South Asia, Asia Pacific—are all being focused on.”

“Earlier, we had a few concentrated export markets; now, the focus is broader for both volume and value growth,” he added. “We are registering more products in these countries to take some share of the business there.”

On the broader global canvas, the US-China trade war has amplified the urgency for de-risked supply chains—a need India has acknowledged but cannot address overnight. “A tariff war has an impact,” Shetty said. “We’ve already seen the stances that both China and the US have taken—they’re softening their stand, reciprocating steps. Both understand that China cannot be replaced overnight.”

He pointed to domestic efforts: “India has come up with the Production-Linked Incentive (PLI) scheme to boost domestic production of APIs and key starting materials. But it will take another five to ten years before we can compete with China.”

India's PLI scheme is a government initiative aimed at boosting domestic manufacturing by offering financial incentives to companies based on their incremental sales of products made in India.

What should Indian pharma companies focus on to stay resilient? “Market diversification is key,” Shetty stressed. “Companies need to keep expanding their presence in new geographies and not be overly dependent on one market, however lucrative it may be.”

He also emphasised the importance of R&D and operational excellence. “Investing in R&D, focusing on complex and niche products, and ensuring regulatory compliance will help Indian pharma companies stay competitive.”

Lastly, he noted, “Building robust supply chains and business continuity plans is also critical, especially given the current geopolitical uncertainties.”

“The US procures most of its vaccines and generic drugs from India. The cost of procurement for these two is low because India has been doing this for quite some time.”
Arnab Bhattacharya, Marken

Arnab Bhattacharya, Senior Regional Director – South APAC at Marken, shared his insights on the evolving scenario and the implications for Indian pharma. Commenting on US President Donald Trump's proposed tariffs on Indian pharmaceutical exports, Bhattacharya pointed out the uncertainty surrounding the announcement. “The US is trying to figure out what the country can do domestically and what needs to be sourced from other countries. The cost of procurement for drugs manufactured in India is competitive. If the US tries to replicate this domestically, costs will go up at least three times.”

Bhattacharya is also the Country Manager, India, at UPS Healthcare. Marken, a UPS company, is a global leader in clinical trial logistics, providing specialised supply chain solutions for the pharmaceutical and life sciences industries, including direct-to-patient services and biological sample shipments.

He added, “The Indian pharma industry, especially the top five, has a solid presence in the US and will not let it go easily.”

India's pharmaceutical trade remains deeply intertwined with the US market. “India’s predominant trade in pharma is with the US,” Bhattacharya affirmed. “The US procures most of its vaccines and generic drugs from India. The cost of procurement for these two is low because India has been doing this for quite some time.”

While India is a powerhouse in formulation manufacturing, raw material dependency remains a concern. “Most of these APIs and raw materials are out of China, even in the case of India,” Bhattacharya explained. “India is manufacturing, but has very limited capability.”

As the market braces for potential disruptions, Bhattacharya noted that niche, high-value drug segments are somewhat insulated.

“That’s very low,” he said about the impact on niche therapies. “Predominantly, the US is the patent holder, and they outsource manufacturing or technology transfer to contract drug manufacturers in India. Clinical trials have slowed down because the drug market is very speculative at this point. People are not going to invest new money right now; whatever is ongoing will continue, but new site initiations and new processes have slowed down.”

Marken’s South APAC chief observed a cooling in business sentiment post-tariff announcements. “It’s stable. It’s not declining, but the growth we used to see month after month since January flatlined. People are not investing in new R&D, but business is as usual, not significantly down.”

As the global trade chessboard is redrawn, Indian exporters are preparing for both pressure and possibility. Tariffs may threaten profit margins, but strategic strengths—like cost-effective manufacturing, high-value components, and reliable pharmaceutical production—position India to deepen its global footprint. Whether it’s responding to regulatory shifts or seizing gaps left by China, India’s exporters are learning that adaptability, speed, and scale will define their future relevance in a world where old trade certainties no longer apply.

This article was originally published in the Indian Transport & Logistics News' May-June 2025 issue.