Indian Auto firms Will Cruise On, Despite Trump’s Tariff War

India, with limited exposure to the US market, can even thumb its nose at the move, choosing to target alternate geographies to make up for revenue shortfalls.

It is Japanese and European auto firms that will be deeply impacted, but even they can wait things out. Their governments aren’t just playing mute spectator and acceding to the US’ eye-for-an-eye tariff hike.

The two nations have unleashed their own tooth-for-a-tooth counter-offensive taxes. Japan is also offloading US bonds and eschewing the dollar, which can unsettle the very fabric of global trade.

The US tariff targets fully-built vehicles and components such as engines, powertrains, transmissions, electrical assemblies and the all-important engine control modules (ECM).

Justifying the tariff hike as a “move to boost local manufacturing”, the Donald Trump administration has been striving to curry domestic favour, vehemently claiming a positive revenue windfall of US $100 billion.

Both People and Firms Face Hobson’s Choice

Promising as its sounds, the claim by the White House may not cut ice or fan fervour in the domestic auto industry, or enamour Americans at large.

That’s because the tariff hike will inevitably lead to higher vehicle prices and adversely impact sales in an already depressed market. According to research firm GlobalData, half of all cars sold in the US in 2024 were imports.

Carmakers who service this demand face a Hobson’s Choice – either set up US manufacturing units or localise procurement; and absorb higher tax costs or pass them on to consumers.

Some like Volvo, Audi, Mercedes-Benz and Hyundai have announced that they will move some production to the US. Ferrari, which makes cars only in Italy, has said it will raise prices by 10 per cent on some models.

BLG Group, the logistics provider at one of the world’s busiest auto shipping terminals in Bremerhaven, says it is gearing up for a 15-per cent drop in traffic due to the tariff hike and the resultant tumult. The new tariff kicks in for assembled vehicles on April 3 and will be extended to auto parts on May 3.

Indian Components Units Also Need A Rethink

Indian auto firms don’t have enough presence in the US market to be unduly worried, with only Jaguar Land Rover (JLR) having sizeable numbers.

Anyway, it is auto ancillary firms that will face the brunt of the tariff hike. They will be forced to rejig their act to make up for losses – the United States accounts for 27 per cent of India’s auto component exports, with revenues of US $6.79 billion (Rs 59,073 crore).

Four Indian auto component manufacturers have any presence of note in the US market – Sona BLW (43 per cent of revenues from the US), Tata Motors (31 per cent of ‘JLR’ revenues); Bharat Forge (38 per cent) and Samvardhana Motherson International Ltd (‘or SAMIL’, 15 per cent).

Nirav Karkera, researcher with Fisdom, red-marks JLR as the most vulnerable, post the tariff hike. “The US is crucial for JLR, contributing a fifth of its total sales of 400,000 units last year. With limited options to maintain margins, JLR will have to resort to price hikes and cost-efficiencies, but these won’t yield immediate results. Hence, a near-term hit is likely in revenues and profitability.”

“Margins will come under pressure,” says Shridhar Kallani, Analyst at Axis Securities. “Exposure to US tariffs will increase costs. If companies cannot pass them on, they may have to cut operational costs or find alternative revenue streams.” 

Realizing this, India’s ancillary firms have been cutting their dependence on the US.

For instance, Sona BLW has been working on alternate markets, diversifying into China, Japan and South Korea; it aims to generate 50 per cent of its revenues from these markets by 2030. SAMIL is uniquely-positioned, given the circumstances – it has a large facility in Alabama and can thus sidestep the new tariffs. 

Europe Extremely Livid: Germany Leads Critical Fallout

“There are no winners in the absolute – only relative gainers, with a significant amount of costs likely to impact the automobile sector,” Dan Levy, Barclays research analyst, said. “The new tariffs are more draconian than anticipated and will cause a ripple effect throughout the supply chain, adding fuel to the already surging price of cars and trucks in the United States.”

Germany was the most outspoken among all European Union nations in its criticism of the US tariff hike. “The entire automotive industry, global supply chains and companies, as well as customers will have to bear the negative consequences (of the tariff hike),” German automaker Volkswagen said.

Hildegard Müller, German Association of the Automotive Industry president, was also livid. “Additional US tariffs send a fatal signal for free, rules-based trade, placing a significant burden on automakers and supply chains – with a negative fallout for consumers – including in North America,” he said.

Germany’s Economy Minister Robert Habeck slammed the auto tariff hike as harmful and “bad news”. He said: “The tariff will harm the US, the EU and global trade as a whole. It is bad news for carmakers, for the German economy, for the EU, for the US. It is crucial that the EU delivers a decisive response – it must be (made) clear that we will not back down in the face of the US (tariff hike).”

Win Some, Lose Some: America Divided on Fallout

Those who support Donald Trump’s move, including US United Auto Workers, say the administration should focus on boosting domestic production, even though they admit that the process of moving facilities to the US would take years, during which costs would rise and production would drop.

The American Automotive Policy Council, which represents the Detroit Three automakers, stood strong by the tariffs and President Donald Trump.

“US automakers are committed to the (President’s) vision of increasing automotive production and jobs in the United States. We will continue to work with the administration on (all) durable policies that help Americans.”

The US share market has not been so supportive. Within a day of the tariff hike, shares of General Motors slipped nearly 7 per cent, while Ford Motor and US-listed shares of Stellantis were down around 3 per cent.

Trump aide Elon Musk was perhaps the only happy automaker, as shares of Tesla rose by 5 per cent, as the EV-centric company is less exposed to tariffs than the competition.

For those who think cars are just four wheels, an engine, synchromesh gears and a steering column, here’s news. GlobalData warns that tariff hikes will impact more than just vehicle insurance rates.

“As insurance firms are hit, home insurance and loan rates will jump, fanning property and other rentals. Homes, gyms, food at restaurants – everything will end up costing more.”

The bad news here is that if one can’t afford to pay home rentals, he is quite unlikely to have a car to sleep in and spend the night, since the car would have gone first. The tariff hike impact can be far-reaching, especially for Americans. That’s how viciously this wheel could spin, when turned full circle.

(The writer is a veteran journalist and communications specialist.)