US tariffs to hit pharma sector, while auto industry impact remains minimal

Enhanced tariffs on pharma imports in the US can severely impact Indian drug manufacturers as it would lead to higher production costs, making shipments less competitive against products from other countries.

Smaller drug firms operating on thin margins can face severe pressure potentially forcing consolidation or closure.

The automobile sector, on the other hand, is expected to have a very minimal impact owing to the US being a small export market.

Terming India as a very high tariff nation, US President Donald Trump has said that reciprocal tariffs on countries that impose levies on American goods will kick in on April 2.

India currently levies around 10 per cent import duty on American drugs, while the US doesn't charge any import duty on Indian drugs.

Shardul Amarchand Mangaldas & Co Partner Arvind Sharma said as of recent history, the US has been a net importer of pharmaceutical products to meet its domestic demand.

"In the event the US decides to impose substantial tariffs on pharmaceutical imports from India, the impact could send noticeable ripples through the Indian pharma sector and simultaneously disrupt its own domestic consumption," he noted.

Indian pharmaceutical companies supply a substantial proportion of drugs to US residents, with four out of ten of all prescriptions filled in the US in 2022 being supplied by Indian companies.

As per industry sources, overall, medicines from Indian companies provided $219 billion in savings to the US healthcare system in 2022 and a total of $1.3 trillion between 2013 and 2022.

Generics from Indian companies are expected to generate an additional $1.3 trillion in savings over the next five years.

Sharma stated that India's pharmaceutical industry, at present, significantly relies on the American market, with the US accounting for roughly a third of its total exports.

"A sudden tariff increase could significantly raise the cost of medicines manufactured in and exported from India to the US, making them less competitive against products from other countries," he added.

By imposing tariffs, the US might inadvertently increase its domestic healthcare costs, burdening consumers and, in turn, making healthcare access scarcer, Sharma stated.

Additionally, in the situation where substantial tariffs are imposed by the US on Indian pharmaceutical products, then that might encourage Indian pharma companies to diversify their export markets, possibly shifting focus to Europe, Latin America or Africa, he said.

Elaborating on the automobile sector, Shashi Mathews, Partner, IndusLaw, said the recent announcements and pushback by the Trump Administration on India's tariff, especially in the auto sector, will have a very minimal impact.

"Reason being that while entry into India may be well protected and thus, heavily taxed, a reciprocal tariff for importing into the US, which is a smaller export market for the Indian automotive sector will not affect us much," he added.

There can be some impact, especially for the automotive components market, he said.

Mathews noted that despite the push for reducing tariffs to zero, it is highly unlikely that the Indian government will reduce tariffs to that level in the near future.

"We have shown our inclination to lower the tariffs by reducing duties on high-end motorcycles, but bringing it to zero will not bode well for the domestic industry as well, and therefore, is unlikely to happen," he said.