India-USA textiles trade: What’s next?

While there will be short term pain for textile manufacturers in India and the increase in price for US consumers, early outcome based on renewed and positive negotiations will help with fresh start in economic and political relations between India and the United States, asserts Dr Seshadri Ramkumar.

Secondary tariff on India has kicked off on August 27, 2025. As of today, the import tariff to the United States for manufactured goods except pharmaceuticals is 50 per cent.

The United States is using tariff to realign economic and geopolitical situations.

United States ranks as the number one export destination for goods from India averaging about 20 per cent of its global total exports.

Textiles and apparels are at front and centre of the sensitive tariff issue as this sector is second in export value following mobile phones from India to the United States. The sector that comes close to textiles is gems and jewellery in export value. On an average, India exports about $ 9-10 billion worth of textiles and apparels and hence this sector offers large employment at both organised and unorganised levels in India.

Loss of jobs in India due to reduced exports has created genuine panic in the industry needing immediate solution. Trade associations and stakeholders have rightly represented the situation to the Indian government and state governments, where textile manufacturing is a key economic player. While such representations are need of the hour, social media channels are having field days on the tariff issue by blaming and name calling, which will not be helpful. However, factual representation of the situation, tariff’s impact on employment and its negative effect on India’s growth will be helpful for reasoning by the Indian Government to the other side.

Indian government under the leadership of Prime Minister Narendra Modi has produced a four-point scheme to manage the situation, while negotiations are going on.

What’s the way forward?

I am of the opinion, a call between the leaders of the world’s largest democracy and the world’s largest economy will happen soon. This will lead to win-win situation catering to the Nation First agenda of both governments.

In my view, the 25 per cent additional tax on the petrol purchase by India from Russia cannot be sustained for long as this is used as a negotiating tool by the United States’ administration to bring Russia to the table to resolve the situation with Ukraine. Probably both governments will be flexible at the end to resolve this sticking matter without comprising national pride and security.

These three paths can bring win-win solutions in reasonable timeframe: 1) Diplomacy; 2) Negotiation and 3) Engagement.

In terms of diplomacy, Prime Minister Modi has shown high-level of leadership by involving in quiet diplomacy and timely engagement with powerful nations like Japan and China.

As the saying goes, timing is everything. Prime Minister Modi’s diplomatic trips to China and Japan and the arrival of new ambassador from the United States to India will provide momentum and new direction of engagement between both nations. Indian government might be already planning to engage in a productive way representing India’s interests and reasoning in a positive way with Sergio Gor, President Trump’s nominee for the ambassadorship. Having someone who is in the inner circle of the President is a positive development and effective engagement will help to ease tensions.

On the negotiations front, discussions might be on-going among trade interlocutors of the two nations as is the case with China. It depends on how much give and take happens in these negotiations, which will lead to base tariff rates. If the discussions are successful, leaving the secondary tariff aside, the basic tariff rate might reach a level of 20 per cent. If Indian negotiators are successful, the lowest possibility can be 15 per cent, which will give edge to India against exporting giants like Vietnam and Bangladesh, which are strong competitors to India in the apparels trade space.

If the tariff negotiations are successful and India ends at the base level of 15-20 per cent, it will have a level playing field with competitors and provide market for cotton exporters.

At the present situation, India has rightly zeroed the tariffs on cotton imports till the end of the year, showing positive gestures, which the Indian negotiators should emphasise in their discussions. As Prime Minister Modi recently stated in his Independence Day message, India must protect its farm, dairy, and animal husbandry sectors. This is the right cause, and it is the policy of Prime Minister Modi’s government, as large section of Indian populace relies on agriculture for their livelihood.

The customs duty reduction from the earlier 11 per cent is a positive gesture in cotton and overall trade. From Indian perspective, this tariff reduction may not hurt Indian agriculture drastically as the land availability for cotton against pulses and cereals, which are important protein source has reached its peak level. Indian government can message this aspect to farmers and agriculture groups and focus on yield improvement in cotton, which has been the request of both textiles and cotton farming sectors. United States’ cotton sector is dependent on export market and the tariff reduction by India will send a positive message throughout the cotton belt in the United States.

It gives flexibility to use custom duty on cotton as a trade negotiating tool and buy time to resolve the tense issue in the best interest of two nations. The entry of a commodity of the United States’ agriculture to a huge market, India will satisfy President Trump’s one of the demands, i.e., market entry for agriculture products.

There is immediate appetite for quality cotton at a competitive price in India. It is up to the United States’ producers to compete in the Indian market against the Brazilian cotton industry. There are positive aspects in the United States’ cotton sector such as low level of contamination, low trash levels, individual bale identification, etc. that must be relayed broadly to the user community in India. The after sales support provided by the United States cotton industry is a unique selling point.

Velmurugan Shanmugam, general manager of Jayalakshmi Textiles, 72,000 spindles mill in Aruppukkottai, India advised that presently imported cotton comes out to be competitive against Indian cotton in terms of price and quality. His mill has booked orders for about 550 tons from two exporting countries with the earliest arrival expected in September.

Cotton exporting nations like United States can engage with their government and the Indian government to enhance its market size in India through proper channels.

As textiles and allied products are the largest export items from India to the United States amounting to over $ 10 billion, effective and pragmatic engagement by the stakeholders without escalating the situation will not only help the textile trade but also the overall trade as cotton trade can be a solution for one of the barriers in the trade negotiations between the two nations.

While there will be short term pain for textile manufacturers in India and the increase in price for US consumers, early outcome based on renewed and positive negotiations will help with fresh start in economic and political relations between India and the United States.

I am optimistic in this regard as the two nations have put in enormous efforts for the past 25 years to build confidence and grow friendships.

Negotiations in the textile space will be key to breaking the ice in the overall trade discussions and hopefully positive results will be expected soon.

About the author:

Dr Seshadri Ramkumar is a Professor, Nonwovens & Advanced Materials Laboratory in Texas Tech University, Lubbock, TX, USA.