India’s 110% Car Tariffs Become Harder to Defend in Trump Era

The Indian automotive sector, long shielded by sky-high import tariffs, faces unprecedented pressure to liberalize its markets. At the heart of the debate are tariffs of up to 110% on imported vehicles—among the world’s highest—which have fueled a thriving domestic industry but now risk stifling foreign competition. As the U.S. and EU push for steep reductions, India’s automakers find themselves caught between global trade demands and fears of losing market share.

The Tariff Crossroads

India’s 110% tariff on electric vehicles (EVs) and over 100% on conventional cars have long been a lifeline for companies like Tata Motors and Mahindra & Mahindra. These barriers have allowed domestic manufacturers to dominate the market, but they also exclude global brands such as Tesla, BMW, and Mercedes-Benz.

The EU has demanded staged tariff cuts to 10%, arguing that India’s protectionism violates free trade principles. Meanwhile, the U.S. is negotiating a bilateral trade agreement (BTA) that could slash auto tariffs further. In response, Indian automakers propose a phased reduction to 70% for petrol cars and 110% EV tariffs until 2029, fearing a flood of cheaper imports.

Trump’s Trade Policies Complicate the Landscape

U.S. President Donald Trump’s 25% tariffs on imported cars and auto parts, enacted in April 2025, have added urgency to these negotiations. While India’s direct auto exports to the U.S. are modest, its $1.5 billion auto components industry faces severe headwinds. U.S. automakers now face higher input costs, threatening demand for Indian suppliers like Bharat Forge and Motherson Sumi.

The U.S. has also imposed a 10% baseline tariff on all countries under the International Emergency Economic Powers Act (IEEPA), with India facing a temporary spike to 26%. These measures aim to force reciprocal concessions, such as lowering India’s auto import duties.

Geopolitical and Economic Stakes

India’s low export dependency—20% of GDP vs. 65–87% for rivals like Thailand or Vietnam—gives it negotiating leverage. Analysts suggest India may trade auto tariff cuts for U.S. concessions in pharmaceuticals or defense imports. Yet, domestic automakers remain defiant. Tata Motors’ shares fell 5% after U.S. tariff announcements, underscoring investor anxiety.

Competitor dynamics further complicate the picture. Vietnam’s offer of zero tariffs on U.S. goods threatens to divert investments like Apple’s manufacturing plans, which could otherwise boost India’s electronics sector. Meanwhile, China’s 125% U.S. tariffs have spurred retaliatory measures, but India’s smaller trade exposure (18% of exports go to the U.S.) keeps its economy insulated.

Supply Chain Shifts and Investor Risks

Companies like Japanese electronics firm Sourcenext are already moving production from China to Vietnam to avoid U.S. tariffs. For India, failure to lower trade barriers risks losing such investments. The auto sector, meanwhile, faces a stark choice: adapt to global competition or risk stagnation as EVs—dominated by Tesla and others—gain traction.

Conclusion: A Balancing Act with High Stakes

India’s auto tariffs are at a pivotal moment. While domestic manufacturers argue for gradual reforms, the U.S. and EU demand swift action. A compromise—such as reducing tariffs to 30% for conventional cars and maintaining EV barriers until 2029—could satisfy all sides. However, the $500 billion trade target under the BTA hinges on resolving these disputes.

Investors should monitor two key indicators:
1. Progress on the BTA: A deal by autumn .25 could unlock $500 billion in bilateral trade, benefiting automakers and exporters.
2. EV market dynamics: Tesla’s entry into India—delayed by tariffs—could reshape demand, especially if tariffs ease.

The outcome will define India’s auto market, its global trade standing, and the resilience of its manufacturers. For now, the path forward remains fraught with tariff battles, geopolitical maneuvering, and the ever-present question: Can protectionism and globalization coexist?

Data sources: Reuters, International Trade Centre, company reports.