US tariff impact: MSMEs in textiles, diamonds, chemicals, spices to be most hit

India may lose market share in seafood to Ecuador, chemicals to Japan and South Korea

Bengaluru: The imposition of 50% tariffs by the US on India will significantly impact export of textiles including readymade garments, diamonds, gems & jewellery, chemicals, spices, leather, and engineering goods. The Indian MSMEs, across sectors, which account for as much as 45% of India's total exports, will be hit significantly.

With the US administration issuing a notification on Tuesday raising tariffs to 50% with effect from August 27, the textiles, gems and jewellery and seafood industries, which account for 25% of India's total exports to the US, are likely to be the most affected. MSMEs have more than 70% share in these sectors and will be hit hard. Another sector likely to face the heat is chemicals, where MSMEs have a 40% share, according to Crisil Intelligence.

Pushan Sharma, Director, Crisil Intelligence, said, “Partial absorption of the increased product prices due to higher tariffs will put pressure on MSMEs, squeeze their already-slim margins and pose a material challenge to their competitiveness. For instance, those into readymade garments (RMG) are expected to lose ground in the US
as the tariff increases to 61%, including 50% additional ad valorem duty, compared with peers in Bangladesh and Vietnam tariffed at 31%. The Tirupur cluster, which accounts for over 30% of India's RMG exports, will be severely impacted as about 30% of its exports are to the US.”

Similarly, in the gems and jewellery sector, MSMEs in Surat, which dominates diamond exports with over 80% share, will feel the tariff shock. As such, diamonds account for over half of the country’s gems and jewellery exports, and the US is a major consumer of Indian diamonds, comprising nearly a third of exports.

MSMEs in the seafood sector will be disadvantaged following the imposition of a 50% tariff as they face severe competition from Ecuador, which is geographically closer to the US and has been levied a much lower tariff of 15%. In chemicals, too, India faces stiff competition from Japan and South Korea, which have lower tariffs.

In the textiles, chemicals, seafood and auto components sectors, the US tariffs will affect $19 billion worth of exports, a part of which stands at risk. However, given that the domestic market for these sectors is expected to grow by $10 billion, the impact is expected to be mitigated to some extent.

Of the five sectors expected to see meaningful impact, gems and jewellery has the highest exposure to the US at about $10 billion. While we expect export volumes to contract, the impact may not be fully reflected in revenue terms because of a likely runup in gold prices and sustained domestic demand, Crisil Intelligence said.

“A 50% tariff on gems and jewellery exports to the US will erode India’s price competitiveness in its largest market. This is likely to reduce export volumes sharply, impacting foreign exchange earnings and widening the trade gap. Strategic policy measures and market diversification are now critical to cushion the sector from this external shock," said Onkar Sharma, Partner at Khaitan & Co.

Landed cost of spices to rise

The additional 25% tariff, taking the total duty to 50%, will significantly raise the landed cost of Indian spices in the US. "This will make us less competitive compared to other origins. The US is among our largest export destinations, and such steep duties threaten long-term contracts, margins, and India’s market share. We hope the government engages diplomatically to ease these tariffs while also providing interim relief measures for exporters. At our end, we are focusing on diversifying into other markets such as Europe, the Middle East, and Asia, and strengthening India’s positioning as a premium, sustainable source of spices to help offset this impact,” said Yashmit Gala, CEO, Galaji Spices.

For consumer brands and cross-border sellers, the impact is more complex than just higher duties. A 50% tariff significantly raises the landed price of Indian goods in the U.S., making them less competitive compared to products from countries not facing similar restrictions. This could mean shrinking shelf space for Indian products in American retail stores and reduced appetite from U.S. distributors who operate on tight margins. Digital-first brands that rely on marketplaces like Amazon or Walmart.com will also feel the heat, since higher prices can directly affect conversion rates and customer retention, said Somdutta Singh, Serial Entrepreneur, Founder & CEO, Assiduus Global.

"In manufacturing-driven sectors, the pressure is two-fold. On one hand, exporters must decide whether to absorb part of the cost, which erodes profitability, or pass it on to buyers, which risks losing contracts. On the other hand, supply chains will need rethinking. Some companies have already started exploring alternate distribution channels, shifting shipments to Europe, the Middle East, and Asia to offset U.S. exposure. These adjustments take time and resources, but they are necessary for survival", she added.

For a small-scale wellness brand like Nabhi Sutra, aspiring to capture the US market, the proposed 25% additional tariff is a major deterrent. It not only raises the cost of scaling into an already competitive landscape but also makes it harder to balance affordability with quality. Entering the US market already requires significant investment in regulatory compliance, certifications, and distribution partnerships—now, with higher tariffs, the return on that investment becomes uncertain, discouraging new entrants like us, said Swati Vakharia, Founder, Nabhisutra.

"With tariff pressures impacting exporters, MSMEs and mid-corporates must explore new domestic business opportunities. TReDS can play a critical role here by enabling sellers to encash receivables from credible buyers at a lower cost, thereby easing liquidity pressure. By offering flexibility in payment cycles, TReDS helps MSMEs manage their continuous working capital needs while pursuing new customers, for instance, in organised markets such as seafood." said Ketan Gaikwad, MD & CEO, RXIL .