Indian textile industry may face $2.5–3 bn blow from US tariff

Leaders urge Union government for immediate, cash-based export incentives to protect Indian textile industry. The crisis has underscored the urgent need for India to reduce its over-dependence on the US market and look for diversification as the key long-term priority, says Rakesh Rao.

On Wednesday, August 6, 2025, US President Donald Trump announced an additional 25 per cent tariff on select Indian goods, effectively doubling the total duty on these products to 50 per cent. The initial 25 per cent tariff is scheduled to take effect from August 7, while the newly announced additional 25 per cent will be implemented from August 27.

Industry experts warn that if enforced, the combined tariff could lead to an immediate loss of $2.5–3 billion for India’s textile and apparel sector. Prominent industry leaders caution that this move, if not addressed urgently, could severely disrupt India’s labour-intensive export economy, leading to widespread job losses and supply chain breakdowns.

Industry reactions and possible triggers

Industry leaders have expressed deep concern over the abruptness and scale of the tariff hike, with Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), calling it “disastrous” and potentially fatal for Indian exporters. “No buyer will be willing to pay 30–35 per cent more for Indian products when they can source from Bangladesh or Vietnam at significantly lower prices,” said Mehta.

While the industry hopes this is a part of the US’s typical negotiation strategy, the uncertainty has triggered concern among exporters. “Trump’s approach often involves announcing steep measures and then scaling them back. We hope this is a temporary shock tactic and not a final decision,” Mehta added.

Reflecting on the possible US motives, Mehta suggested the tariff announcement could be part of a broader negotiation playbook. “We’ve seen this before. Even countries like China, Vietnam, and Bangladesh initially faced 30–40 per cent duties, which were later moderated. The fact that US negotiators are still scheduled to meet with Indian counterparts (on August 25, 2025) points to a possible rollback.”

Raja Shanmugham, MD of Warsaw International, described the hike as part of an “unethical trade war” that is likely to hurt labour-heavy sectors like textiles, leather, and gems & jewellery. “It is a disruptive and unfair tactic. The US has strategically exempted imports critical to its economy, like electronics and pharmaceuticals, while targeting Indian products,” he added.

Sanjay Jain, MD of TT Limited, linked the decision to geopolitical tensions, possibly India’s continued import of Russian oil. “If India caves to this pressure, it sets a precedent of giving in to economic blackmail. But if we don’t, we risk unemployment and recession in key export sectors,” he warned.

What the government must do now

The fallout of this tariff hike is already evident. According to Mehta, the US accounts for 30–35 per cent of India’s apparel exports, and this shock could result in an immediate loss of $2.5–3 billion.

Jain pointed out that new orders from the US are likely to cease, while existing shipments will result in significant losses. “A 65 per cent effective duty (including previous tariffs) is unsustainable,” he stated.

The disruption is expected to have a ripple effect. Cotton farmers, yarn spinners, garment manufacturers, and ancillary industries are all deeply interconnected. “The entire supply chain—from farm to factory—will be impacted. This is more than just a trade issue; it’s a national economic threat,” said Jain.

The call for urgent government intervention is unanimous. All three leaders stressed the need for immediate, cash-based export incentives to protect ongoing operations and prevent industrial collapse. “Existing export programs cannot be halted due to this shock. The government must offer temporary support through differential incentives,” said Shanmugham.

Jain agreed, noting that only financial aid could neutralise the damage. “We’re being hit with cash-based tariffs. The only effective counter is cash-based subsidies. Anything less won’t suffice.”

According to Mehta, there are no quick fixes. “Even with new FTAs, like the one signed with the UK, the benefits will take time to materialise due to procedural formalities. Other global buyers will not suddenly increase their orders to compensate for the shortfall,” he said.

Some industry experts are pushing for India to adopt reciprocal pressure tactics and suggest India to explore export duties on pharmaceutical products—a critical segment exempted from US tariffs but heavily dependent on Indian supply. “India supplies nearly 45 per cent of US pharma needs. Medicines aren’t easily replaceable. We must consider using this leverage strategically,” said Shanmugham.

Long-term strategy: Diversify and de-risk

The crisis has underscored the urgent need for India to reduce its over-dependence on the US market. Experts believe diversification as the key long-term priority. “India must broaden its export base both geographically and in terms of product range. We can’t rely on a single volatile market,” Mehta said.

The European Union and the UK were cited as the most promising alternatives, with fast-tracking the India-EU FTA being a critical next step. Japan, Australia, and New Zealand offer further potential but require long-term relationship building and compliance with high standards. “Japan pays well but demands consistency. Indian exporters must evolve to meet such expectations,” he observed.

Despite the grim short-term outlook, the leaders believe this could be a turning point for India’s export strategy. “The global economy is too interdependent for such extreme tariffs to last. In the end, American consumers will also bear the cost,” said Shanmugham.

India’s strong domestic market, large workforce, and increasing global relevance position it well for a manufacturing renaissance—if the right policies are implemented swiftly. “With a potential workforce four times that of the US, India is poised for a supply chain transformation. But the government must seize this moment with bold and decisive action,” Shanmugham concluded.

“This is not just about trade. It’s about protecting jobs, safeguarding our industrial backbone, and asserting India’s position in global commerce,” Jain added.