The Indian auto component manufacturing sector is adjusting to a series of tariffs imposed by the United States, with up to 25% duties affecting a broad range of products, according to a report by Motilal Oswal. These developments are prompting Indian exporters to reevaluate their pricing strategies and assess the long-term impact on global supply chains.
As of April 2025, Indian exporters face three categories of US tariffs. First, a 25% tariff has been in effect since 12 March 2025 on steel and aluminum derivatives, covering items such as forgings, castings, and wheels. Second, under Section 232 of the US Trade Expansion Act, 25% tariffs on auto parts—such as engine components, drive systems, and electrical assemblies—will take effect on 3 May 2025. Third, from July 2025, a deferred 25% regional tariff will apply to other components, including rubber parts, where India has been placed in a high-tariff bracket.
While uncertainty remains regarding the duration and scope of potential relief measures recently suggested by the US administration, companies are already confronting operational challenges. Confusion around customs classifications and shifting trade policies has created ambiguity for exporters, especially with additional scrutiny on goods routed through Mexico by Chinese-owned firms.
The US, which imports approximately USD 230 billion in auto components annually, sources 3% of these from India. Other major contributors include Mexico (35%), China (15%), and Canada (10%). Increased tariffs on Chinese goods—now totaling 45% for autos—combined with restrictions on the export of rare earth elements and battery materials, are expected to significantly disrupt electric vehicle supply chains.
Although recent developments could create opportunities for Indian manufacturers, past efforts to benefit from global supply chain diversification—often referred to as the “China+1” strategy—have seen limited success. Countries such as Indonesia, Vietnam, and Thailand attracted more investment due to higher rankings on the Ease of Doing Business Index.
According to a study by BCG, Indian suppliers are currently about 10% more cost-competitive than their Chinese counterparts. However, Mexico’s proximity to the US continues to offer it an edge, contributing to a competitive gap of just 4% relative to India.
The Indian auto component industry was valued at USD 74 billion in FY24, with exports accounting for USD 21.2 billion. The US and European Union each represent about USD 7 billion in export value. Engine parts and transmission systems form more than half of these exports.
Despite recent growth in exports, many US original equipment manufacturers (OEMs) are encouraging Indian vendors to establish facilities in Mexico or the US to mitigate trade risks. Decisions on such expansions are expected only once there is greater clarity on long-term policy directions.
Industry expert Vinnie Mehta noted, “After the pandemic, many Indian auto component manufacturers have been approached by global OEMs for sourcing from India as they seek to de-risk away from China.” However, he also emphasized that scaling production and achieving regulatory approvals typically takes several years.
Negotiations for a bilateral trade agreement between India and the US are ongoing, with expectations that a deal could be concluded within six months. Such a framework could potentially influence future tariff structures and market access conditions for Indian manufacturers.