US’ punitive tariff: The struggle begins; exporters brace for impact

The United States has notified an additional 25 per cent duty on Indian goods effective August 27, taking the overall tariff to a steep 50 per cent, a move that may virtually push a vast majority of Made-in-India products off the American shelves.

A so-called “reciprocal” 25 per cent tariff was already in force since August 1. The new tariff has taken the total to 50 per cent. This will erode competitiveness of Indian exporters as the competitors like Vietnam, Bangladesh, Indonesia, Japan and China face much lower duty.  

The new duty is likely to further strain India-US relations. The US Homeland Security notice on India tariff was released hours after Prime Minister Narendra Modi asserted that India would not compromise on the interests of farmers, small entrepreneurs and livestock rearers.

Textile industry may see temporary job loss

Workers at a garment manufacturing unit in Noida.

Implementation of 50 per cent tariffs by the US administration from April 27 is expected to hit employment in the textiles sector in the short run, especially for vulnerable sections like MSME organisations and women employees. In the medium to long run, this sector can remain resilient by focusing on diversification across geographies, especially European Union as well as a huge and growing domestic market, according to Sonal Arora, Country Manager, GI Group Holding.

Major textile and apparel export destinations for India are the US and EU which account for 47 per cent of the total textile and apparel exports. The US is the largest importer, picking up 29 per cent of India's total textile and apparel exports.

"It must be noted that this sector is already under pressure and experiencing a worrying decline in total export value. India's garment exports in 2023-24 were $14.5 billion, compared to $15 billion in 2013-14. Whereas Vietnam and Bangladesh's garment exports grew significantly during the same period, reaching $33.4 billion and $43.8 billion, respectively," Arora said.

This is in the context of pre-April 2025, when Indian textiles faced standard 8–12 per cent Most Favoured Nations (MFN) tariffs. While Indian products now face a 50 per cent tariff, the applicable rates for Bangladesh and Vietnam are 20 per cent, she said.

"However, we must also consider the fact that Indian exports to the US represents only 6 per cent of the overall Indian textile industry, which is valued at $179 billion (domestic $142 billion and exports $37 billion)," she said.

The textiles and apparel industry in India is currently the second largest employer in the country, providing direct employment to 4.5 crore people. Less than 20 per cent of the workforce is employed in large scale factories. The rest are attached to micro, small, and household-based enterprises.

Cotton duty exemption extended; exporters relieved

People work at a garment factory in Tiruppur, in the Southern state of Tamil Nadu.

In a bid to give some relief to the country's textile sector hit by the US' punishing 50 per cent tariff that came into effect on Wednesday, the union government in an order extended an import duty exemption on cotton by three months, until the end of December. Though the waiver of the 11% import duty won’t fully offset the potential losses caused by US tariffs on Indian imports, the textile hubs of Coimbatore and Tiruppur welcomed the move on Thursday, saying it would help cool down yarn prices, which will be highly beneficial for the sector.

The Southern India Mills’ Association (SIMA) acknowledged the decision as timely relief for the textile industry as this extension will not only enable exporters to meet existing commitments but also help seize summer market opportunities overseas. SIMA also urged textile mills and exporters not to panic but to focus on identifying new markets while simultaneously strengthening their presence in the domestic market.

Dr S K Sundararaman, Chairman, SIMA, said the duty waiver will not negatively affect cotton farmers since production has fallen below 295 lakh bales, compared to the industry requirement of 318 lakh bales. He noted this has resulted in the lowest closing stock ever, causing a raw material shortage.

TN's leather & seafood exporters stumped

A man picks up coloured animal hide before putting it inside a press machine at a tannery in Mumbai.

Leather goods manufacturers in Tamil Nadu, who account for 30% of the country’s total leather exports to the US, are facing a major crisis as their US buyers are demanding heavy discounts on finished goods and asking them to hold back fresh orders.

This sector is among the hardest hit following US President Donald Trump’s decision to impose a 50 per cent penalty tariff on Indian imports.

Likewise, the seafood industry in Tamil Nadu, which exports frozen shrimp, squid, cuttlefish, sea crabs, and octopus to the US, has also been adversely affected by the high tariff, forcing producers to scale down production. Although Tamil Nadu accounts for just 5 per cent of India’s total seafood exports to the US, it remains a key market -- about 65 per cent of the shrimp exported from the state is sent there.

K V V Mohanan, Vice-President of the Seafood Exporters Association of India (SEAI), told DH that many US buyers have asked exporters to place stocks on hold. “It’s not just that; buyers from other countries importing seafood, like shrimp, are taking advantage of the situation by demanding discounts. We cannot handle this situation alone,” he elaborated.

“US buyers have clearly told us to hold orders and are bargaining hard for discounts,” he added.

Mohanan also called upon the Union Government to reinstate the 3% interest subvention granted to the industry and to resolve export issues with the EU. He also warned that if the situation continues, layoffs are likely.

Tamil Nadu is home to approximately 674 leather and footwear manufacturing factories, with major production hubs located in Ambur, Ranipet, Vaniyambadi, Trichy, Chennai, and Dindigul.

The US tariffs will impact exporters who primarily deal with the American market -- many export over 60 per cent of their goods there. Exporters say that buyers are demanding discounts of up to 20 per cent on completed orders and have sought to put fresh or pipeline orders on hold.

Israr Ahmed, past Regional Chairman of the Council for Leather Exports, told DH that many exporters managed to front load shipments before the deadline, the impact of the tariffs is likely to be felt later in the year.

Diamond polishers face 28-30% revenue loss in FY26

A craftsman checks the grading of a polished diamond in the grading department of a diamond processing unit in Surat

India’s natural diamond polishing industry faces a steep 28-30 per cent fall in revenues to about $12.50 billion this fiscal, as compared to $16 billion in FY25, after the imposition of 50 per cent tariffs (25 per cent reciprocal plus 25 per cent penalty) by the US. The blow will pile on a 40 per cent de-growth the industry saw over the past three years due to fall in both prices and sales volume of natural diamond, with demand receding in the US and China and growing competition from lab-grown diamonds, according to Crisil Ratings research.

The 50 per cent tariffs, effective August 27, makes exports to the US tough for two reasons: one, the industry’s low margins make absorption of the incremental levy very difficult and two, declining demand means passing on the incremental burden to consumers will not be easy.

The consequent reduced operating leverage could erode the operating margin of diamond polishers by 50-100 basis points and pressurise their credit profiles, an analysis of 43 diamond polishers by Crisil shows.