India Exports Take the Heat Amid US Tariff Hike
Amid escalating tariffs, approximately 53% of the exports from India to the US are on the firing line. India is wrestling with escalating apprehension, as a clear sign from Washington for the forthcoming round of the envisioned bilateral trade agreement (BTA) talks remains awaited. Simultaneously, the nation is gearing up for a potential surge in US tariffs on Indian goods to 50%, straight from 25%, slated for the 27th of August. This unstable circumstance has sparked serious apprehension in the Indian exporters’ community, many members of which have been witnessing order terminations and hefty discount requests from US purchasers.
The US, in an unforeseen move, postponed its trade delegation’s set visit to New Delhi on August 25 and has not yet finalised a new date for ensuing BTA discussions. The rising tension, thus, revolves around the nearing deadline of August 27, when tariffs are prepared to amplify. Despite the upcoming increase in tariffs being almost inevitable, there remains a faint possibility that the present US-Russia consultations on the ongoing Ukraine conflict may provide a last-minute reprieve.
The effects of the initial 25% reciprocal tariffs imposed on August 7 have already taken a heavy toll. The scenario is intense and exporters find themselves combating order cancellations or significant markdowns of 20 – 25% for the ongoing season. It is understood by both exporters and buyers that these hefty markdowns are untenable in the long term, prompting them to scout for alternatives.
This sentiment is reverberated across varied sectors, with industries chiefly reliant on labour such as textiles, handicrafts, leather, gems and jewellery, and footwear, being especially susceptible. The garment and textiles industry had mentally prepared for the burden of a 25% reciprocal tariff, but the threat of a staggering 50% duty is practically unimaginable.
Such escalated duties would place Indian apparel at a stark 30-31 percentage tariff disadvantage in comparison to its competitors, including Bangladesh, Vietnam, Sri Lanka, Cambodia, and Indonesia. This could lead to the Indian apparel industry being completely outpaced in the US market, resulting in severe financial duress and large-scale employment losses.
Reacting to this looming threat, the industry is urgently petitioning for financial aid from the government to stay afloat in the US market, at least until a conducive BTA is established. Prompt assistance from the government is of paramount importance since recovering lost market share proves to be a Herculean task.
To address these mounting concerns, the government is reportedly preparing a supportive package under the Export Promotion Mission. This package stands to encompass affordable credit solutions and other incentives aimed at bolstering market access. The focus is likely to intensify on items that are hit hard by the US tariffs.
During FY25, India’s yearly exports to the US were pegged at a substantial $86.7 billion, constituting about one-fifth of the country’s total merchandise exports. As a consequence of the rising tariffs, approximately 53% of India’s exports to the US stand to be impacted adversely.