Riding the Tariff Wave

US President Donald Trump’s 27 per cent reciprocal tariff on India could give exporters an edge over rivals like China, Vietnam, and Bangladesh. Divya Shetty will explore whether India will seize this opportunity or miss it again.

US President Donald Trump has recently announced a revised set of tariff rates impacting a wide range of countries, signalling a renewed focus on reshaping global trade dynamics. While several neighbouring nations like China, Bangladesh, and Vietnam have been hit with significantly higher tariff rates (see Table 1), India finds itself in a comparatively advantageous position—with the lowest tariff rates among them. This unexpected edge could open new doors for Indian exporters, particularly in the textile industry, which stands to benefit from the shifting global sourcing strategies of American buyers seeking cost-effective alternatives.

India’s total exports to the US was $77.5 bn in FY24 (around 18 per cent of total exports) of which textile exports would be around $9.6 bn (around 12 per cent of India’s total exports to the US; ~28 per cent of India’s total textile exports). On the imports front, Indian textile industry imported $0.5 bn from the US in FY24 (around 1 per cent of total imports from the US) indicating that India is net exporter to the US in the textile industry.

As per the data shared by India Ratings, top five countries exporting textile products to the US in 2024, comprising around 60 per cent of total textile imports in US, were China (34 per cent tariff imposed, increased to 125 per cent and then to 245 per cent at present), Vietnam (46 per cent), India (27 per cent), Bangladesh (37 per cent), Cambodia (49 per cent), Sri Lanka (44 per cent) and Indonesia (32 per cent). Considering lower incremental tariffs on Indian textile exporters, the competitive landscape for Indian textile products shall improve. India stands to gain in the textile export market as the US importers optimise their costs by seeking alternatives to suppliers which are relatively more expensive post the reciprocal tariffs.

According to Shradha Saraogi Garg, Associate Director, Corporates, India Ratings & Research, “The reciprocal tariffs imposed by the US are likely to benefit the Indian textile industry, especially the players engaged in export of apparel and home textiles. India exporters may witness increased volumes amid a supply chain re-orientation in the short-term. Larger-integrated textile players already supplying to such US buyers would be at an advantage, compared to the mid and small sized players, to capitalise on the increasing export opportunities.”

“This is going to be a strategic opportunity for India because comparatively our competing countries are burdened with more tax percentage. At the same time we have to pass through the challenge in handling quantities and quality to cater to the market with timely delivery.”

• Raja Shanmugham, MD, Warsaw International

The new tariff landscape

The US has imposed a 27 per cent tariff on Indian textile imports, citing retaliatory measures against India’s average 52 per cent tariffs on American goods, Indian textile products enjoyed lower duties, generally under 10 per cent benefiting from trade preferences. The move aligns with the Trump administration’s push for ‘reciprocal trade’ and aims to reduce the $10 billion annual trade deficit with India. In contrast, competing nations like Bangladesh and Vietnam continue to enjoy duty-free or low-tariff access to the US market under preferential trade programs, placing Indian exporters at a distinct disadvantage.

“Our industry will need to upgrade our facilities, increase our production capacities, make our units more compliant, and start manufacturing products required by the American market, rather than just continuing to export what we have been doing so far.”

• Rahul Mehta, Chief Mentor, CMAI

Amongst all the countries, China will face the highest reciprocal tariff from the US and reverse tariff by China on the US. The EU has also decided to retaliate to the reciprocal tariffs of the US.

As per Gurudas Aras, Strategic Advisor and Independent Director, “Over the years China has built huge capacities, mainly in high tech manufacturing and is ready to unleash Tsunami of its exports on the world. China is using more factory robots than any other country and those too are locally manufactured. This will bring the manufacturing cost considerably down. This applies to all high-tech electronics, automobiles as well as to the textile manufacturing.”

With China’s diminished presence in the US textile market due to elevated tariffs, opportunities have emerged for other textile-producing nations. Countries such as India, Vietnam, Bangladesh, Cambodia, Pakistan, Sri Lanka, Turkey, and several South American nations are poised to capitalise on this shift. Notably, Turkey and many South American countries benefit from relatively low US tariffs, often around 10 per cent, enhancing their competitiveness compared to nations facing higher duties.

“With the new US tariffs on Chinese textiles, China may look at diversifying its exports. Japan and South Korea may absorb more due to trade agreements. Bangladesh, Vietnam and India also can be the next big destinations for textiles from China.”

• Gurudas Aras, Strategic Advisor and Independent Director

With the imposition of steep tariffs by the US on Chinese goods, China is actively seeking alternative markets to redirect its surplus exports. India, given its large consumer base and existing trade ties, emerges as a potential destination for these redirected goods. The Global Trade Research Initiative (GTRI) has highlighted concerns that China may resort to dumping products like electric vehicles, batteries, and other technology items in India to offset its trade losses from the US market. This potential influx poses challenges for Indian manufacturers, who may struggle to compete with the low-priced Chinese imports.  Raja Shanmugham, MD, Warsaw International, opines, “Entry of Chinese goods directly are well governed through tariffs. Still a strict monitoring aspect to be stepped up to control camouflaged entries.”

“A lot would depend on the specific tariff structure. If tariffs on raw materials are lowered while duties on finished goods remain high, it may actually reduce Chinese imports. However, if the tariff revisions inadvertently make certain Chinese goods cheaper or more accessible, we might see a short-term spike in imports—especially in categories where Indian production is limited or less cost-effective, especially in synthetic fabrics.

India has intensified scrutiny of misdeclared Chinese fabric imports. While revised US tariffs could theoretically divert Chinese exports to India, stricter enforcement of ‘Rules of Origin’ and industry vigilance are likely to limit this trend,” says Dr Siddhartha Rajagopal, Executive Director, TEXPROCIL.

“The oversupply may potentially lead to the Chinese prices being significantly lower leading to the domestic landed cost for imported goods still being lower than the domestic prices. This may hurt the margins of domestic upstream players in the near-to medium term.”

Shradha Saraogi Garg, Associate Director, Corporates, India Ratings & Research

Urvashi Sharma, Consultant, Wazir Advisor, also comments, “The revised tariffs may create a window of opportunity for Chinese textile imports into India. As China adjusts to new tariff dynamics, it is expected to divert its surplus capacities at significantly lower costs to other global markets to compensate for the loss of access to the US. India, with its large consumer base, could become a key target.”

Additionally, Bangladesh already enjoys duty-free access for garment exports to India. With reduced competitiveness in the US, Bangladesh may also redirect exports to India, leading to a further rise in imports.

Segments potentially exposed to risk

As per the data shared by TEXPROCIL, Product categories like synthetic fibres, technical textiles, and high-value fashion garments could be the most vulnerable. India still imports a significant portion of specialty fabrics and high-performance materials, so any tariff hikes on these inputs could affect production costs and competitiveness. Additionally, low-margin segments like basic knitwear or cotton garments may also suffer if tariffs disrupt the supply chain or increase prices.

Some of the other most vulnerable product categories may include:

• Apparel: Accounts for 35 per cent of India’s US-bound exports, facing a 26 per cent tariff.
• Carpets: 58 per cent of India’s carpet exports rely on the US market.
• Synthetic fabrics: Vulnerable to under-invoicing and misdeclaration by importers.

Favourable prospects

As outlined earlier, this revision is poised to unlock significant opportunities for the industry, with several key areas primed for streamlining, including the following.

Competitive edge in value-added products: If the revised tariffs lead to increased costs for synthetic or technical textiles from the affected countries, India stands to benefit by positioning itself as a competitive alternative. This opens the door for Indian exporters to promote their value-added offerings, particularly in segments like organic and sustainable textiles, custom fashion manufacturing, and home furnishings, as well as technical textiles. By focusing on these differentiated, high-demand areas, India can strengthen its presence in the US. market and capture the shifting sourcing preferences of global buyers.

Rising interest from global brands: With rising interest from global brands, international retailers and fashion houses are increasingly seeking reliable, politically neutral, and cost-effective sourcing partners. In this landscape, India stands out as a compelling choice due to its vast textile ecosystem that spans the entire value chain—from farm to fashion. The country has built a strong reputation for producing high-quality cotton and home textiles, and its growing emphasis on sustainable and ethical sourcing further enhances its appeal to conscious global buyers.

“On account of higher tariffs, the resulting higher input costs could erode India’s price competitiveness if not managed carefully. Bangladesh and Vietnam already enjoy preferential trade access and lower labour costs, making them formidable competitors.”
Dr Siddhartha Rajagopal, Executive Director, TEXPROCIL

MSMEs can step in: While large exporters stand to benefit from increased volumes, MSMEs have the opportunity to tap into niche markets by focusing on customised, high-margin segments. This presents a chance for them to move up the value chain, embrace digitisation and innovation, and forge direct relationships with boutique or mid-sized US brands, thereby strengthening their position in the global market.

Key challenges to be faced

The tariff revision presents both an opportunity and a challenge for India. On the positive side, India can position itself as a preferred sourcing hub with lower tariffs compared to competitors, but it must address key structural bottlenecks to fully capitalise on this.

“he focus should be on improving cost efficiency, expanding capacity, and building a sustainable supply chain to convert this into a long-term opportunity through cost optimisation, product diversification, and scaling production capabilities..”

Urvashi Sharma is a Consultant at Wazir Advisors

Increased global competition: Although India has comparatively lower tariff rates among Asian countries, Aras mentions that the “nations like Turkey, Morocco, and those in Latin America could also emerge as strong contenders in this competition, with their tariff rates hovering around 10–15 per cent.

Price pressure from rising cost: As tariff rates increase, US importers may be more inclined to share the tax burden with exporters. However, this will largely depend on the strength of the partnership and each party’s negotiation skills. Rahul Mehta, Chief Mentor, CMAI, adds, “This is something that will work on a one-to-one basis, case-to-case basis. Each exporter and their buyer will be negotiating and arriving at their own conclusions. No exporter enjoys the kind of margin where they can absorb an additional 10 per cent duty. So, as of now, that appears improbable. Presumably, they will be negotiating for some kind of relief or adjustment—perhaps sharing the burden on a 50-50 basis or something similar. But there is obviously no formalised, structured agreement. It has to be dealt with on a case-to-case basis.”

Managing capacity: While experts view this as a significant opportunity for India to seize, they also caution that the country has missed similar chances in the past—such as the China Plus One strategy and the disruptions in Bangladesh—primarily due to capacity constraints. Saraogi mentions, “The Indian textile industry may not be able to cash on the opportunity immediately, due to the limited capacity to scale up supply immediately and would need to set up facilities and obtain approvals from international buyers which may take some time. On the contrary, any incremental capacity addition decisions based on the revised tariff structure may be unlikely in the near-to medium term as the situation may evolve over the next few months. Any developments on bilateral trade negotiations between the US and India over the next 4-6 months would be a key monitorable. Further, any increase in low-cost dumping of Chinese textile goods in India may also impact the gross margin spreads and shall remain under close watch.”

Less favoured destination for MMF: India is a global favourite for cotton, thanks to its large-scale production. However, it has yet to establish itself as a preferred destination for man-made fibres (MMF). This gap could potentially result in fewer orders from the US, with demand shifting toward countries that have stronger MMF production capabilities. Sharma adds, “India holds a strong position in the export of cotton-based products, so these products are less vulnerable to the effects of the revised tariffs as India has established itself as a reliable supplier. However, MMF products could be more vulnerable, as India has limited production capabilities in this segment, and its share in the export of MMF-based products to the US is relatively low. This could result in an increased reliance on imports from countries with more established MMF production, making it a challenging segment for India to capitalise on in the wake of these tariff changes.”

How can we leverage the 90-day tariff pause?

Although the reduced tariff rates offer significant benefits to the textile industry, the US government has imposed a 90-day pause before their implementation. This window presents a valuable opportunity for the Indian government to engage in negotiations with the US for a more favourable deal. When asked whether the association has any recommendations for the Indian government, Mehta responds, “Our request to the government, essentially during this 90-day period or post the 90 days, is to negotiate the best possible terms with the US government to ensure that the initial advantage we had from the new tariff announcements—where tariffs on India were lower than those levied on Bangladesh, Vietnam, Cambodia, China, etc.—is maintained. This would have placed India in an advantageous position. So, our request to the government is to ensure that this parity is preserved and that we continue to have a lower tariff compared to our competing nations.”

During this 90-day pause on reciprocal tariffs with the US, the Indian government has a valuable opportunity to proactively position the country as a more competitive and reliable trade partner. Several strategic actions can be taken to capitalise on this window.

Firstly, the government can advocate for sector-specific concessions, particularly in areas where India currently underperforms—such as man-made fibres (MMF). By highlighting the country’s potential for growth and capacity development in this segment, India can make a case for more favourable trade terms and encourage investment into expanding MMF production.

In addition, organising India-US textile summits, trade expos, and B2B matchmaking events can serve as powerful platforms to connect Indian MSMEs and exporters directly with US brands and retailers. These events would foster trust, help build long-term relationships, and provide a stage to showcase India’s evolving manufacturing capabilities.

Streamlining export-related infrastructure and processes is also critical. The government should prioritise fast-tracking approvals and clearances in key areas such as logistics, warehousing, and port operations to ensure smoother and faster shipment cycles. At the same time, India must upgrade its testing, certification, and compliance mechanisms to align with the rigorous standards demanded by the US market. This will not only boost credibility but also reduce rejections and improve delivery timelines.

Moreover, this period offers a chance to strategically promote India’s strengths—for instance, its leadership in sustainable cotton production and its growing competence in technical textiles. A targeted branding campaign in the U.S. could reshape global perceptions and attract attention from buyers seeking ethical and scalable sourcing alternatives.

Lastly, it’s crucial for policymakers to actively engage with industry stakeholders—including exporters, manufacturers, and trade bodies—to gather on-ground insights and challenges. These real-time inputs can be used to restructure incentives and fine-tune export policies so they align better with US import patterns and emerging market dynamics.

By taking a holistic, action-driven approach during this temporary tariff truce, India can not only boost its textile exports but also solidify its position as a key player in the global value chain.

Way forward

While the tariffs position India favourably against Asian rivals, success of the country’s export strategy will depend on balancing cost competitiveness, policy agility, and demand-side risks.

The strategy may require some key adaptations going forward, like:

• Product diversification: Focus on value-added textiles and premium segments to offset price sensitivity.
• Market expansion: Explore the EU and ASEAN markets to reduce the U.S. dependency.
• Supply chain efficiency: Adopt automation and sustainable practices to lower costs.
• Policy advocacy: Push for bilateral agreements (e.g., zero-tariff cotton imports) to solidify advantages.

“To avoid any potential impact on our exports, we are already evaluating the export mix and considering moving into value-added segments where India can offer differentiation. Exploring new geographies—like Africa, Latin America, and the Middle East—could also help mitigate dependence on price-sensitive markets. Additionally, we’re looking at vertical integration and local sourcing to reduce exposure to global supply chain disruptions and tariff volatility,” informs Rajagopal.

However, this opportunity is not without challenges. India’s limitations in man-made fibre (MMF) production, infrastructural bottlenecks, and capacity constraints could hamper immediate gains. Additionally, the risk of increased dumping by China and intensified competition from low-tariff regions like Turkey and Latin America necessitates strategic vigilance.

The 90-day implementation pause provides a crucial window for the Indian government to negotiate better trade terms, accelerate reforms, and promote India as a sustainable, reliable sourcing hub. Targeted support for MSMEs, enhancement of MMF capabilities, and stronger compliance frameworks can further strengthen India’s position. To truly capitalise on this shifting trade dynamic, India must act swiftly and decisively—leveraging policy, investment, and diplomacy to convert temporary advantage into long-term export growth.