What Are The Long-Term Implications of Tariff Swings On MSME-Heavy Sectors Like Auto Components & More?

Tariff volatility creates a moving target for MSMEs in sectors like auto components, engineering goods, and steel-where operating margins are typically in the 5-8% range. A 10-12% swing in import or export duties can wipe out up to 40% of net margins, creating significant unpredictability in pricing, sourcing, and delivery commitments.

Tariffs on steel and aluminum, which included derivative products like pipes, engine blocks, and screws, rose to 50% on June 4, 2025, after being initially levied at 25% under Section 232 in March. Late March 2025 saw the implementation of a 25% tariff on imported vehicles and auto parts, with a temporary 3.75% offset for vehicles built in the United States (which drops to 2.5% after a year).

India and other countries are subject to a 27% "reciprocal" tariff on engineering goods, such as machinery, electrical goods, steel-derived products, and auto components, that are targeted for U.S. imports. India's exports of engineering products have been impacted by the US's higher tariffs on steel and aluminum imports, which include a 50% steel tariff. According to the Engineering Exports Promotion Council (EEPC), Indian exports might be negatively impacted by $4-5 billion.

While the initial reaction might suggest that India will be hit hard by the new U.S. tariffs - but in reality, nearly every major exporting nation has been brought under the same 50% duty structure. India is not uniquely disadvantaged; the only exception is the UK, which enjoys a preferential 25% rate, but it lacks the capacity to absorb displaced global volumes. This levels the playing field and buffers India from being disproportionately impacted.

While the government has stated the impact may be minor, the bigger story lies in how these recurring tariff shocks are reshaping sourcing strategies, export margins, and global supply chain planning, especially for MSMEs and mid-sized exporters.

"Many MSMEs have reported cost overruns of up to 15% and shipment delays of 2-3 weeks during periods of tariff flux. In the long term, these sectors will require stronger trade intelligence, automated compliance, and policy-aligned sourcing strategies to remain globally competitive amid an increasingly protectionist trade environment," as per Sunil Kharbanda, Co-founder & Chief Operating Officer, Trezix.

MSME-heavy sectors like auto components, engineering goods, and steel will face near-term volume pressures and margin compression, particularly from higher landed costs in the U.S. and softening downstream demand. However, these sectors are structurally resilient, with diversified markets and growing non-U.S. demand cushions.

"⁠India's manufacturing ecosystem, especially MSMEs, has been steadily improving its value chain positioning - moving from commodity exports to higher precision and value-added products. This shift provides some insulation from purely price-driven trade pressures and makes Indian exports "stickier" even amid tariff turbulence," said Utkarsh Sinha - Managing Director at Bexley Advisors.

"Many Indian exporters may face a demand lag, but the long-term outlook remains robust. The present tariff regimes are inherently political and fluid. India's deeper bilateral ties and its growing role in global supply chains position it well for a rebound once the current overhang stabilizes," Utkarsh Sinha further added.

⁠From a capital markets perspective, sectors with strong domestic order books and government tailwinds (like PLI-linked manufacturing) are likely to outperform in this volatility, while pure-export MSMEs may need to reorient their sales pipelines toward other high-growth regions such as the Middle East, Africa, and Southeast Asia.

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