US tariffs & Indian MSMEs

On April 2, the US launched a fresh tariff policy, which went in to effect on April 5, charging a 10% default tariff on every foreign commodity, along with an extra 20% tariff on Indian items beginning April, 2023.

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This is based on US President Donald Trump’s ‘reciprocal trade’ ideology, which targets countries like India which are alleged to have high tariffs (e.g., 40% for motorcycles, 50% for apples). For Indian MSMEs—63 million firms accounting for 30% of GDP, 45% of exports, and employing more than 110 million—the policy poses serious disruption.

Indian MSMEs lead the way in exports to the US. India’s largest export market, with $63 billion in FY24 merchandise, generating a $46 billion surplus. Apparel and textiles ($8.6 billion), gems and jewellery ($3.9 billion), electronics ($1.1 billion), and auto parts ($7 billion) are leading sectors, which tend to operate on thin margins with government backing such as the Interest Equalization Scheme. The 2%-3% tariff threatens this balance, increasing costs and undermining competitiveness.