Impact Of Donald Trump’s Presidency on Indian Automotive & Non-Automotive Sector

Trump's policies may pressure emerging markets like India, potentially weakening the rupee and increasing inflation.

The majority believes that the long-term relationship between the US and India will get stabilized on Trump getting to power for a second term. Another major global concern is the ongoing wars and geopolitical instability, which are expected to eventually be resolved, allowing India to benefit from improved trade routes.

It is also believed that the Trump administration's policies may put pressure on emerging markets like India, potentially leading to a weakening of the rupee against the dollar and rising inflation. Additionally, the "China plus one" strategy adopted by the US could have a positive spillover effect on India. As US companies diversify their supply chains, India could emerge as an alternative destination for manufacturing, boosting exports and strengthening its position in global trade.

However, his protectionist policies may pressure India's economy unlike any other emerging markets (ER), potentially leading to a weaker rupee and higher inflation due to tariffs and a stronger dollar. Geopolitically, Trump’s approach could bring greater stability, benefiting global trade routes and India’s position in them. His policies on trade protectionism, manufacturing, and foreign policy are likely to have a mixed impact on India’s economic landscape, with effects varying across different industry sectors. IT and technology sectors may get challenged; possible visa restrictions offshore working could have certain repercussions.

Impact of Donald Trump’s Presidency on India's Non-Road Products: Automotive Parts, Agricultural Machinery, and Other Non-Road Products

When we discuss non-road products, we are typically referring to automotive parts, agricultural machinery, construction equipment, and similar products that are not intended for on-road use but are critical to industries like agriculture, construction, and mining. These products play a significant role in India’s export economy, and Trump's presidency, with its protectionist trade policies and economic priorities, had a notable impact on these sectors. Let’s break down the effects of Trump’s presidency on India’s exports and industries related to non-road products.

1. Impact on India’s Automotive Parts Exports

India is a major supplier of automotive parts and components to global markets, including the U.S. The export of non-road automotive parts, such as components for heavy machinery, construction vehicles, and other off-road vehicles, forms a significant part of this sector.

A. Tariffs and Trade Barriers 

Steel and Aluminium Tariffs: During Donald Trump’s first term, the imposition of steel (25%) and aluminium (10%) tariffs directly impacted Indian manufacturers who exported these metals to the U.S. In retaliation, India imposed tariffs on 28 U.S. products, including almonds, apples, and walnuts. Over time, negotiators reached an agreement to reduce steel tariffs in exchange for India removing tariffs on U.S. agricultural goods.

With Trump’s potential second term, there are concerns that these steel and aluminium tariffs could be re-escalated, which may negatively affect India's export position in these sectors. Indian manufacturers could face higher costs and reduced competitiveness in the U.S. market if protectionist policies are reinstated, putting pressure on India's steel and aluminium exports to the U.S.

B. Protectionist Policies: The "America First" agenda and trade wars with countries like China have created a more uncertain and restrictive environment for Indian exporters, particularly in sectors like automotive and heavy machinery.

For decades, the American economy thrived on outsourcing, benefiting from affordable prices, quality, and large quantities. This led to enormous trade surpluses for many countries with the U.S., with India being one of the top 10 trade partners, running a surplus of nearly $30 billion. India’s "Make in India" initiative is beginning to bear fruit, as it successfully replaces supply chains for companies like Apple and other large hyperscale manufacturers.

However, the ongoing trade wars and protectionist policies could potentially undermine India’s manufacturing sector, affecting the country’s ability to maintain its growth momentum and shift global supply chains.

Indian manufacturers of construction equipment and agricultural machinery (such as tractors, harvesters, and tillers) also faced challenges due to tariffs and regulatory scrutiny. For example, companies like Mahindra & Mahindra and Tata Motors, which manufacture off-road vehicles, heavy construction equipment, and agricultural machinery, export these products to the U.S. Any increase in tariffs or trade barriers could make their products less competitive in the U.S. market.

C. Trade Agreements and Strategic Engagement

Despite the challenges, it is anticipated that efforts will evolve toward reaching agreements and fostering strategic engagements, increasing mutual cooperation in defense and infrastructure. There could also be optimism for the non-road equipment sector, with similar developments in this area.

The new US-Mexico-Canada Agreement (USMCA), which replaced NAFTA, includes provisions that scrutinize the country of origin of products routed through Canada and Mexico. This could potentially put pressure on Indian-origin products and supply chains.

2. Agricultural Machinery Exports

India’s agricultural machinery exports to the U.S. were also impacted by Trump’s presidency, particularly by his stance on trade and tariffs.

A. Impact of Tariffs on Agricultural Machinery

 Anticipated U.S. retaliatory tariffs on several Indian products, including agricultural equipment, could create challenges for Indian companies that produce agricultural machinery, such as Mahindra Tractors and Sonalika Tractors. These tariffs would increase the cost of Indian exports, raising the prices of products like tractors, plows, tillers, and harvesters. Supply Chain Disruptions: U.S. tariffs on Indian agricultural machinery disrupted global supply chains. Indian manufacturers of agricultural machinery sometimes rely on U.S. components, and the increased tariffs created supply chain bottlenecks and cost increases. As a result, Indian exporters found it harder to remain competitive in the U.S. market.

B. Impact on Agricultural Exports (GSP Removal)

Trump’s revocation of India’s GSP (Generalised system of preference) status in 2019 removed the duty-free access for certain Indian exports, including agricultural machinery. Which latter India was lobbing for restoration. 

During a second term of the Trump administration, the outlook remains uncertain, which could negatively impact U.S. agricultural exports. The removal of Generalized System of Preferences (GSP) benefits for India may lead to higher costs for small-scale farming equipment, making it more expensive for Indian farmers. Additionally, U.S. farmers exporting to India, China, and other emerging markets could face retaliatory tariffs, which could harm their competitiveness in these markets.

C. Strategic Collaboration and Technology Transfer

Despite tariff challenges, India’s agricultural machinery sector is expected to benefit from technological collaboration with U.S. companies. These partnerships in technology and manufacturing have allowed U.S. firms to leverage India’s expertise in producing affordable, efficient machinery for smallholder farmers. This collaboration is particularly valuable in regions like Africa, Southeast Asia, and the Middle East, where Indian companies such as Mahindra Tractors are well-positioned to meet the increasing demand for affordable tractors and mechanization in developing markets.

Conclusions 

Trump's second term could bring both opportunities and challenges for India. On the positive side, a stronger U.S.-India relationship in defense and technology, along with the China-plus-one strategy, could boost India's exports as U.S. companies diversify supply chains. However, Trump's protectionist policies and tariffs may increase costs for Indian manufacturers, particularly in sectors like Information & Technologies, automotive parts and agricultural machinery.

Despite these challenges, strategic collaborations between U.S. and Indian companies in areas like agriculture machinery offer potential growth. Through technology transfer and manufacturing partnerships, India could strengthen its position in global markets like Africa and Southeast Asia.

In summary, while tariff pressures may hurt certain sectors, India’s strategic engagements and manufacturing capabilities could offset some of the negative impacts, leading to continued growth in key industries.

Disclaimer: All data is sourced from various references, and predictions are based on interviews and discussions with market stakeholders.