By: ICN Bureau
Last updated : April 07, 2025 9:53 am
The 26% tariff raises the cost of Indian chemical exports to the US, potentially reducing demand for specialty chemicals and intermediates
US President Donald Trump’s reciprocal tariffs, announced on April 2, 2025 impose a 26% duty on Indian goods entering the US, including chemicals (excluding pharmaceuticals). This policy aims to mirror tariffs imposed by other nations on US exports, significantly affecting India’s chemical sector, a key export industry.
Impact of the tariffs
India’s chemical sector (excluding pharmaceuticals) is a vital part of its export economy, with the US being a top destination. In FY24, chemical exports to the U.S. were valued at approximately $5.71 billion. Prior to the tariffs, U.S. duties on Indian chemicals averaged around 1.06% to 3.5%, making the jump to 26% a steep increase. This shift contrasts with higher tariffs imposed on competitors like China (34% additional duty on top of existing tariffs) and Vietnam (46%), potentially offering India a relative advantage despite the hike.
Negative Impacts
Increased Costs and Reduced Competitiveness: The 26% tariff raises the cost of Indian chemical exports to the US, potentially reducing demand for specialty chemicals and intermediates. Companies like SRF, Navin Fluorine, and Gujarat Fluorochemicals, which rely heavily on the US market for products such as refrigerants and fluorochemicals, may see compressed profit margins unless they absorb the cost or pass it on to U.S. buyers, risking market share loss.
Global Price Pressure: Expert analyses suggest that Trump’s broader trade war, particularly with China, could lead Chinese chemical firms to dump excess supply into other markets at lower prices. This could depress global chemical prices, intensifying competition for Indian exporters in non-US markets as well.
Short-Term Export Decline: A Citi Research report estimates that India could face annual export losses of up to $7 billion across vulnerable sectors, with chemicals among the hardest hit. This aligns with the tariff differential—previously a 6.05% gap between US and Indian duties on chemicals—now amplified by the reciprocal policy.
Potential Opportunities
Relative Advantage Over Competitors: India’s 26% tariff is lower than those imposed on China (54% total), Vietnam (46%), and Bangladesh (37%). This could make Indian chemicals more competitive in the US compared to these rivals, potentially allowing firms to capture market share if they adapt pricing strategies effectively.
Supply Chain Shifts: As US buyers seek alternatives to higher-tariffed sources like China, Indian chemical exporters could benefit from supply chain realignments. This opportunity hinges on India’s ability to scale production and maintain quality.
Sector-Specific Effects
Specialty Chemicals: Companies like UPL (20-25% US revenue) and SRF face immediate pressure but may mitigate losses by diversifying markets or leveraging India’s lower relative tariff burden.
Petrochemicals: Exports worth $4 billion in 2024 could see reduced US demand, though exemptions for certain petroleum oils may soften the blow for some sub-segments.
Broader Economic Context
India’s chemical exports to the US constitute about 18% of its total exports ($75-78 billion in 2023-24). While the tariffs may shave off $2-7 billion from India’s exports in FY25-26 (per India Ratings and Research), the sector’s resilience could be bolstered by India’s robust domestic demand and ongoing US-India trade talks, which might yield exemptions or relief by autumn 2025.
Conclusion
Trump’s 26% reciprocal tariffs pose a significant challenge to India’s chemical sector by raising export costs and risking a short-term decline in US demand. However, India’s relatively lower tariff rate compared to competitors offers a chance to gain market share if exporters adapt swiftly. The net impact will depend on global price dynamics, US consumer response, and India’s strategic countermeasures in trade negotiations.