India being the rising power as the top steel as well as the energy player finds itself in tough position now due to the tariff to the various speculations as well as uncertainty emanating from the US

Byline: Panckaj N Umrania, Executive Director, KND Steel

In the most recent updates as is known the US has imposed considerable increases in tariffs on certain countries on aluminium and steel imports, which has raised alarms as well as uncertainties among global corporations, for India the tariff rate has been hiked up at 27 per cent whereas before it used to be at 25 per cent.

While looking like an overhaul of trade policies on the surface with an impact much broader in nature. India being the rising power as the top steel as well as the energy player finds itself in a tough position now due to the tariff to the various speculations as well as uncertainty emanating from the US.

Understanding the Tariff Trigger
The reasoning for the decision of the American administration is for preserving local industry, reduction in foreign input dependency and meeting national security needs. These are politically sound objectives but create a domino effect in the global value chain, with significant impact on countries like India, which provide value added as well as finished steel products to the USA.

For India, whose steel products worth USD 750 million were exported in the last year to America, the proposed tariff increase will destabilize its already delicate businesses related to energy-infrastructure, weaken bilateral trade relations, and dent competitiveness.

Steel Sector: Caught between Pressures and Challenges
The Indian steel industry saw remarkable growth in the previous two decades. India is now the second-largest steel producer in the world, annually producing over 160 million tonne of steel. The nation has big ambitions to raise its capacity to produce 300 million tonne by 2030, but this proposal has serious challenges.

A large portion of Indian premium steel, specialty, and cold-rolled, is exported and its destination is primarily in the US. Indian industry always offers American companies competitive prices. Increased tariffs would cause severe dislocations, including backlogs in excess inventory, fluctuating prices and considerably decreased domestic production.

These potential ripple effects compound the problem. Indian exporters can begin targeting Europe or Southeast Asia as the market, in the US becomes increasingly difficult to manage. Unfortunately, those markets are already saturated or in the process of implementing their own trade restraints. This may translate into tighter margins for earnings, growing uncertainty among workers, and additional stress on government support schemes.

The Secret Energy Angle
Steel is an energy-intensive industry. Disruption in steel exports due to levies inevitably mirrors the demand for power. Power consumption on the steel corridor that connects Odisha, Chhattisgarh and Maharashtra is directly associated with production cycles. Slump in steel production due to export problems means the drop in power usage in the industrial sector affects profitability as well as planning in the power sector.

On the flip side, steel tariffs can drive global steel prices up. This is detrimental for downstream project plans, mostly in the renewable space that is heavily reliant on steel for wind turbine, solar mounting hardware, as well as transmission equipment. If the input cost soars, the project is no longer viable, resulting in project cancellations or postponements. India can ill afford such disruption in pursuing its target for adding 500 GW of non-fossil capacity by the year 2030.

Jobs, Politics, And An Evolving World Order
India’s steel industry directly employs over 2 million workers and another 5 million indirectly through allied activities, logistics, and raw material handling. If export volumes are restrained due to the American tariffs, the job market would be affected. It is at an undesirable political timing as employment as well as economic growth are centre-stage in India’s national agenda.

Also at play is the geopolitical undertone here. The raising of tariff, if not directed at India specifically, is evidence of America’s toughening in its trade policy. While global alignments are being reworked, with America, China, and the EU re-ranking their economic interests, India is going to have tightrope-walking. Counter-duty retaliation might not be the recommended approach here. Trade negotiations intensified, along with sectoral diplomacy, will be at the centre here.

What India Can Do

India has multiple levers at its disposal through which it can minimize the effect.

Meeting out market diversification: Indian steelmakers have to increase market expansion activity in Latin America, Africa, as well as Central Asia. These regions can absorb high-quality steel with fewer restrictive hurdles as well as with long-term demand projections.

Value Added Segment Emphasis: Emphasis on high margin specialty products like electrical steel, defence alloy grades and automotive sheet will reduce tariff exposure.

Multilateral Negotiations: Working through international bodies like the World Trade Organisation (WTO) to address trade disputes.

Strategic Engagement: India should pursue greater interaction with the Office of the USA Trade Representative, looking for product specific relief or quota based relief like it had under Section 232 previously.

Energy Policy Synergy: India can avoid local production cycles generating waste of energy or economic instability if it aligns its policy for steel with its policy for energy. Climate commitments can be met through incentives for steel production with lower carbon in addition to acting as a buffer.

Turning Point, Not The End
It’s noteworthy that similar tariffs imposed during President Trump’s first term in March 2018 led to significant job losses in downstream industries, outweighing gains in steel and aluminium production.

China’s survival response to massive tariff blow will matter for India, amid its excess industrial capacity and dumping in the world and Asian markets. While we negotiate with the USA and other trade partners, we might have to protect against Chinese responses & tariffs, which could immediately hit domestic industries.

Many businesses may be forced to delay their investment as they worry about demand contraction and the flow of cheap imports into the country. This will also slow growth investment-led in the economy.

Prime Minister Narendra Modi and President Donald Trump have agreed to sign a BTA by the fall of 2025, aiming to take bilateral trade from USD 200 billion to USD 500 billion in 5 years, when a BTA framework is already on a fast-track mechanism and when bilateral engagements are well entrenched, any immediate reaction is unwarranted.

This approach reflects India’s intent to navigate the complex trade environment thoughtfully, seeking solutions that balance national interests with global trade dynamics.

Through innovation, diversification and diplomacy outreach, India can turn this headwind into opportunity. It will be tested on the road ahead too, the mettle of its steel industry as much as its planners in the energy space.