Does it Matter if India Removes All Tariffs on American Automobiles?

Nearly 100 years ago, Ford and General Motors established assembly plants in Sewri in ‘Bombay’ to cater to the promising Indian car market. Yes, even a century ago, India was considered one of the top automotive markets in the world. Despite the turbulence of the two World Wars and our freedom movement, India remained an attractive destination.

American cars won over the volume segments because of their ease of operation and repair, ability to withstand Indian road and climatic conditions, and value for money. The two American carmakers were joined by Chrysler two decades later via a tie-up with the Walchand Group. But by the end of the 1950s, the US Big Three were out of the country as India insisted on local ownership and control, among other reasons. The three would return after liberalisation in the 1990s only to pack up and leave in a decade or so – though Chrysler continues to exist in its Stellantis avatar with the Jeep brand.

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As I write this, the Union Minister of Commerce is in Washington DC trying to hammer out a trade deal with the Trump administration. Ol’ McDonald is trying to protect his farm by taking action on India’s stringent import duties – on among other things – fully-built up automobiles by levying retaliatory tariffs.

If the Trump administration leans on India to cut its import duties on completely-built up units – which they see as unfair tariffs – will the American car brands get ready for their third innings in India? Will it matter if there are zero import duties on Ford, General Motors or Stellantis? Then our roads will be filled with machines India desperately wants, right? How about the GMC Yukon XL (nearly 19 feet) or a Ford F-450 Heavy Duty (powered by a trifling 7.3-litre naturally aspirated V8)? Oh, how about a Chevrolet Suburban ‘With Extra Cheese’ or a Ford Expedition MAX ‘WouldYouLikeFriesToGoWithThat?’ Nah. Think clean, this is the era of climate change. We can instead get an eco-friendly GMC Hummer EV, a mere featherweight at 4,000 kilos. You know where this is going…

More than the three legacy brands who have had a chequered history in India, it is Tesla which lit the spark against India’s tariff regime. Elon Musk wanted easy access to the promising Indian market without investing in manufacturing or assembly – especially when he has enough and more capacity in his Gigafactories to address the Indian market. India’s administration exactly a year ago pivoted and brought out a new EV policy specifically designed to attract Tesla to India, hoping to get Elon visit the country just before the General Elections were announced. Instead: No Tesla, only Trump and Tariffs.

India is considered one of the most protectionist countries in the world; we have our reasons, but most experts in this field say that our tariff regime is counterproductive. It has made us vulnerable to dealmakers like the current US President. Everything looks like a nail to him because he has a hammer in his hand.

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What if India reduces its tariffs on America-made cars then, as a sop to keep Uncle Sam happy? I believe it will not have any negative effect. That’s because we are yet to see any desirable cars that the Americans currently make that India wants. Let’s assume Tesla is a household name and all Indians aspire to own one. Even after full duty exemption, they will not be cheap – Tesla will compete in the higher end of the market, selling maybe a fraction of what Elon dreams he will in India. In other words, none of the cars America makes is real competition to Indian OEMs like Mahindra Auto or Tata Motors, or even to other foreign car companies that have invested in India – not only volume players like Hyundai and Kia, but even Mercedes-Benz and BMW too. The confidence is not misplaced. Cracking open the Indian market even if it has been handed over to you on a platter is not easy. Ford, GM and Chrysler have learnt the hard way twice over that India is not for amateurs. So, will Tesla be any different?

Oh, did I say American cars are not desirable? Of course, they are – but they are not in production anymore. Yes, I am talking about vintage and classic American cars. If the Indian Government is arm-twisted into cutting import duties on these, then full support to President Trump. Make American Cars Great Again!