Chemical chaos: Trump’s tariffs push small Indian chemical firms to the brink

The reciprocal tariffs imposed by US President Donald Trump on chemical exports have created new challenges for India’s chemical industry. Notably, India is the world’s sixth-largest chemical producer and the third-largest in Asia. The sector also contributes roughly 7% to the country’s gross domestic product (GDP).

It is worth mentioning that the US President, on April 9, reduced a proposed 26% reciprocal tariff to 10%, just days after announcing the higher rate on April 2.

What impact will Trump’s latest diktat have on the country’s chemical sector?

According to Satish Wagh, Vice President of industry body Chemexcil, tariffs have made operations tougher for chemical firms. However, he points out that the segment’s competitors—China (up to 245% levy), Vietnam (46%), and Bangladesh (37%)—face even higher tariffs, making Indian chemical products relatively more attractive. “For now, Indian MSMEs will remain price-competitive, especially in segments where India has strong cost advantages, e.g., dyes, agrochemicals, organic chemicals, and specialty chemicals. Perhaps chemical exporters need to absorb part of the tariff cost to retain US customers, which could reduce profit margins,” says Wagh.

“The impact will vary by product category. High-value, hard-to-substitute chemicals such as dyes, agrochemicals, organic chemicals, and specialty chemicals will see limited effect— while low-margin, bulk chemicals like inorganic chemicals may be more affected by the 10% cost hike,” he adds.

Looking ahead, he warns that pressure on profit margins could lead to an export slowdown, disrupting raw material procurement and production cycles. There is also the threat of dumping by competitor countries, particularly China, which may reroute exports via India to exploit regulatory loopholes.

Wagh explains, “Due to higher tariffs (245%), China may dump certain chemicals in India, including inorganic chemicals, dyes, and agrochemicals. Indian importers will see this as an opportunity and will import these chemicals from China. This may impact domestic manufacturers. Also, due to global tariff changes, some contracts or orders that are in the pipeline or under negotiation may be delayed or renegotiated. Buyers might evaluate alternate suppliers, especially from tariff-exempt competing countries like Japan, South Korea, and Saudi Arabia.”

To overcome the aforementioned challenges, Wagh suggests a mix of short-term and long-term strategies. In the near term, he stresses the importance of harmonising HS Codes between India and the US to avoid tariff mismatches and reduce trade barriers. He also recommends prioritising the negotiation of a comprehensive Bilateral Trade Agreement (BTA) with the US. Additionally, Wagh advocates for imposing duties on chemical imports, particularly from China, to prevent India from becoming a dumping ground.

In the long term, he believes that Indian chemical companies should actively explore new markets across Europe, the Middle East, Africa, and Southeast Asia to reduce their dependence on the US. He also believes that strengthening domestic production capabilities and reducing dependence on imported raw materials is critical. Wagh suggests that collaboration with US partners to establish manufacturing bases within the US may serve as an effective strategy to circumvent tariffs. Lastly, investing in specialty and high-value chemicals, he argues, will help boost the global competitiveness of Indian exports.



MSMEs hit hard by tariffs and data gaps

The chemicals industry in India is highly diversified, covering over 80,000 commercial products, and is predominantly characterised by small firms, employing over 2 million people, according to government data. Notably, Chemexcil states that Indian MSMEs contribute almost 65% to overall Indian chemical exports.

Rajat Mehra, Co-convenor of the CII UP MSME Panel and Director at Rajat Chemicals Industry, says Trump has, in one swoop, disrupted the international trade playing field, making it extremely uneven, particularly for thousands of small firms (MSMEs) engaged in all types of chemical and specialty chemical manufacturing. He adds that this highly fragmented international trading landscape has forced them to reassess not only their own strengths but also the strengths and weaknesses of competitors located in different tariff zones.

Mehra emphasises that while the Indian government has limited options; it must negotiate a trade deal with the US that ensures India remains in the 10% base tariff zone. “Given the extreme disruption caused by the new reciprocal tariffs and the resulting multiple tariff zones, access to import data from American ports has become a critical requirement for Indian exporters. While this data is available, it comes at an exorbitant cost, affordable only for large companies. Most MSMEs cannot afford it and are left without access,” he adds.

Further, Mehra opines that considering the gravity of the new international trade landscape, the government must acquire import-export data from US ports for the past 2-3 years and provide it free of cost to MSMEs. This will help them analyse potential opportunities. “The government must seriously revisit GST and income tax procedures, simplifying them to promote ease of doing business, allowing MSMEs to focus more on growth and less on compliance.”



Way forward

Amid increasing tariff pressures, the Indian government is reportedly examining all available options. “We are still studying. We are in touch with the industry and trying to assess how it will affect our sector,” said Chemicals and Petrochemicals Secretary Nivedita Shukla Verma during a press briefing last week.

Another critical question is what roadmap India should follow to recalibrate its trade strategy during this 90-day pause. Faisal Ahmed, professor of international business and geopolitics at the FORE School of Management in New Delhi, is of the view that while the current 90-day break in tariffs might be prolonged, the US and China will likely return to the negotiating table—possibly within this month—as neither can sustain a lose-lose strategy for long.

Ahmed suggests India should adopt a three-pronged approach to capitalise on the current situation, particularly if the pause and the US-China stand-off continue. First, it should push for an early negotiation of a free trade agreement with the US while also revisiting the possibility of joining the Regional Comprehensive Economic Partnership (RCEP), of which India had been a founding negotiating member. Second, India needs to roll out a 100-day action plan aimed at boosting domestic manufacturing, backed by targeted incentives under initiatives like Make in India and the Production-Linked Incentive (PLI) scheme. Third, Ahmed underscores the urgency of addressing supply-side constraints by strengthening domestic production capacity, streamlining trade facilitation, diversifying market access, and expanding port infrastructure—all as part of an integrated strategy.