India’s Response to US Trade Disruptions

Dhruv Saxena, Senior Consultant, Agri-Food & Nutrition Growth Advisory, Frost & Sullivan

In a significant shift in US trade policy, the introduction of reciprocal tariffs by the United States, particularly a 26 per cent levy on Indian goods, has sent ripples across global trade corridors. Implemented under the Trump administration’s revised “America First” doctrine, these tariffs aim to align the tariff rates imposed by trading partners with those levied by the US, fundamentally disrupting traditional export dynamics.

For India, the move presents both a challenge and an opportunity to recalibrate its export strategy. Although a 90-day moratorium is currently in place, should India fail to come to an agreement with the US government on a trade deal, chances are high that these could be brought back arbitrarily. This 90-day moratorium, however, provides Indian exporters an opportunity to re-align their strategies across crucial sectors such as seafood, rice, spices, dairy, processed foods, sugar, cocoa, and agrochemicals.

Seafood Industry: Relative Advantage Amidst Global Tariff Pressures

India’s seafood exports, especially shrimp, constitute approximately 40 per cent of its seafood shipments to the American market. The imposition of a 26 per cent reciprocal tariff initially raised concerns about Indian shrimp losing price competitiveness. However, the broader context tells a different story. Vietnam and China, two major competitors in shrimp exports, face significantly steeper tariffs of 46 per cent and 34 per cent, respectively. This discrepancy in tariff rates paradoxically enhances India’s competitive edge in the US market.

Moreover, Indian shrimp enjoys a reputation for quality and compliance with international safety standards, giving it an added advantage. If Indian exporters manage to absorb or offset the cost burden through supply chain efficiencies and reduced margins, there is potential for India to increase its market share in US seafood imports.

Rice Exports: Moderate Risk but Retainable Market Share

India exports between 250,000 to 300,000 metric tonne of rice to the US annually, making it a substantial player, especially in the basmati and speciality rice segments. With the 26 per cent tariff, concerns over the erosion of cost competitiveness are legitimate, particularly given the already tight margins in commodity exports.

Yet, the landscape is not entirely unfavourable. Vietnam and Thailand, two key rice exporters to the US, also face similar or even higher tariffs. This levels the playing field and allows Indian exporters to retain their market foothold if quality is upheld and logistical efficiencies are leveraged.

Given that basmati rice is a niche product with limited global substitutes, India can still safeguard its market share by emphasising quality and branding.

Spices: A Nuanced Battle of Tariffs and Competition

India is the world’s largest spice exporter, and the US is a premium destination, especially for black pepper, cumin, turmeric, cardamom, and chilli. The 26 per cent tariff, however, introduces varying levels of competitiveness depending on the spice in question.

Spices Facing Competitive Pressure:

Black Pepper: Competes with Brazil, which faces a 10 per cent tariff, significantly lower than India. This could redirect some US import demand toward Brazilian pepper, particularly in the commodity segment.

Cardamom: Guatemala, another strong competitor, also benefits from a 10 per cent tariff, potentially impacting Indian volumes.

Spices with Tariff Advantage:

Turmeric and Chilli: In these categories, competitors face higher tariffs than India, allowing India to retain or grow their market share.

The outlook for Indian spice exports to the US remains mixed. For high-value, quality-assured spices, India can still compete, but it must be vigilant about price pressures and the emergence of substitute supply channels.

Dairy Exports: A Vulnerable Sector with Strategic Opportunity

India’s dairy exports to the US were valued at $ 181 million in 2023, primarily comprising clarified butter (ghee), paneer (cottage cheese), and other ethnic dairy products. These are culturally specific products with limited domestic substitutes in the US, giving Indian exporters some breathing room despite the 26 per cent tariff.

What’s more, India faces minimal direct competition in this niche segment. Neither the EU nor the US produces ghee or paneer in comparable styles and volumes.

While Indian dairy exporters may see some price pressure, overall demand may remain steady due to brand loyalty and product uniqueness. In addition, if Asian nations like Japan, South Korea, and Vietnam impose counter-tariffs on US dairy imports, India could gain new opportunities in these markets, helping diversify its export base.

High-Value Exports Under Threat

India exported nearly $1.03 billion worth of processed food, sugar, and cocoa-based products to the US in 2023. This category includes snack foods, confectionery, bakery products, and packaged beverages. These are price-sensitive segments where India competes with Latin American and Southeast Asian suppliers.

A flat 26 per cent tariff on these exports significantly hampers India’s price competitiveness, especially for commodity and value-added processed foods, where margins are thin and shelf prices matter.

Likely Outcomes

– Short-term decline in export volumes due to pricing disadvantages.

– Brand-driven Indian products (e.g., ethnic snacks or Ayurvedic drinks) may still retain a niche presence, albeit under pricing pressure.

In the absence of favourable tariff negotiations or subsidy support, Indian companies must explore stronger branding and focus on the product’s ethnic roots to remain viable in this segment.

Agrochemicals: A Strategic Sector at Crossroads

India’s agrochemical exports to the US were valued at $300 million in 2023. With a 26 per cent tariff now applicable, this export stream is under serious pressure, particularly because competitors like Mexico and the EU, with similar tariff regimes, enjoy a geographical proximity advantage that India lacks.

Moreover, China, a major agrochemical producer and exporter, has been hit with even higher tariffs. While this may sound beneficial to India at first glance, it also raises the risk of Chinese agrochemical dumping in other global markets, especially in Southeast Asia, Africa, and South America. This could cause a temporary price crash, making it harder for Indian producers to stay competitive globally.

Strategic Responses for India:

– Strengthen trade relations with European, ASEAN and African markets.

– Invest in product branding to differentiate from price-driven competition.

Navigating Tariff Shock

The imposition of reciprocal tariffs by the US is both a disruption and an opportunity. While a flat 26 per cent duty does introduce new headwinds, India’s export story remains resilient in many areas, due to its focus on quality, niche specialisation, and shifting geopolitical alliances.

Strategic Recommendations:

1. Market Diversification: Explore and deepen trade relations with Japan, South Korea, ASEAN, and the Middle East, where Indian products are already gaining traction.

2. Brand Positioning: Emphasise quality, safety, traceability, and ethnic appeal of Indian products, particularly in dairy, rice, and spices.

3. Government Interventions: Seek tariff renegotiation through bilateral agreements or export subsidies for high-potential categories.

4. Private Sector Innovation: Invest in cost reduction, technology, and logistics to stay competitive in a price-sensitive global market.

India’s Inherent Strengths

India’s export economy stands at an inflection point due to the US’s reciprocal tariff regime. While some sectors may face short-term challenges, India’s inherent strengths—diverse agri-food offerings, product uniqueness, and adaptability—can convert this trade turbulence into an opportunity for reinvention. With strategic action across government and industry, India is well-positioned to navigate the shifting global trade landscape and continue emerging as a robust player in high-growth international markets.