India-US Trade Deal Jitters: A Jolt to Apparel Exports Amid Strategic Global Realignments

As India strengthens its global trade footprint through Free Trade Agreements (FTAs) with the UK and the European Union, a sudden development in India-US trade relations has sent shockwaves across several export-driven sectors, especially the apparel industry. The announcement of a potential 25% levy on Indian apparel exports to the US has disrupted the optimism that was building around a possible India-US trade understanding.

This development, if implemented, could escalate into a formidable challenge for India’s textile and apparel exporters, undermining years of diplomatic and trade negotiations.

The Apparel Sector: A High-Stakes Export Contributor

India’s apparel industry is a significant component of the country's export economy, employing over 45 million people and contributing more than $15 billion annually in exports. The United States stands as one of the largest export destinations for Indian apparel, absorbing approximately 27% of India’s total garment exports.

In this context, a 25% tariff proposed by the US comes as an unexpected and serious jolt. Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), shared his reaction:

“Whilst the announced levy 0f 25% does come into effect, it would indeed be a surprising twist to our expectations on the way the trade talks were proceeding. However, having seen the several about turns on the tariff front in the case of other countries, I would not press panic buttons right now. But, if the proposed terms do come into effect, it will make our products 7% to 10% more expensive than some of our competitors, and it will certainly hurt our apparel exports to the US.”

His words reflect a cautious optimism, mixed with a pragmatic view of international trade uncertainties.

Implications: A Margin-Crushing Blow for Exporters

If enforced, the 25% tariff would erode the price competitiveness of Indian apparel in the US market. Exporters, already operating on thin margins, would find it difficult to absorb such a duty. In practical terms, Indian garments would be priced 7–10% higher compared to competing countries like Bangladesh, Vietnam, and Indonesia, which enjoy either duty-free or lower-duty access to the US market.

This would make Indian apparel less attractive to American buyers and retailers, who are extremely price-sensitive. With inflationary pressures already influencing consumer behaviour in the US, higher-priced imports from India could see reduced demand, leading to order cancellations, reduced volumes, and job losses back home.

Not Just Tariffs: Strategic Realignment in Global Trade

However, all is not gloom. Rahul Mehta further highlighted a silver lining:

“Fortunately, this set-back has come at the time when we have just signed an FTA with UK, and are proceeding rapidly with an FTA with EU. So yes, it is tough times, but not beyond our ability to face.”

Indeed, India’s recent FTA with the United Kingdom opens up new opportunities for exporters, potentially compensating for the shortfall in the US market. The FTA covers textile and apparel products and is expected to result in duty-free access for a vast range of Indian garments. With the UK emerging as an alternate high-volume destination post-Brexit, Indian manufacturers are already recalibrating their supply chains.

Meanwhile, the ongoing negotiations with the European Union, if concluded successfully, could provide Indian exporters access to one of the largest consumer markets in the world with preferential tariffs. The EU’s focus on sustainable and ethically sourced apparel also aligns well with the evolving compliance capabilities of Indian manufacturers.

Political Underpinnings of the Tariff Move

The proposed 25% duty is seen by many as politically motivated. With the US gearing up for its 2024 Presidential elections, trade protectionism and “America First” narratives are making a comeback. Targeting imports from developing countries serves the dual purpose of appealing to domestic workers and portraying a tough-on-trade stance.

India, often grouped under the GSP (Generalized System of Preferences) framework, has already seen its GSP benefits withdrawn by the US in 2019, citing market access issues. The proposed tariff may be an extension of that stand, or it could serve as a bargaining chip in broader negotiations on digital services, pharma trade, and agricultural access.

MSME Impact: Small Players in the Crossfire

For India’s Micro, Small and Medium Enterprises (MSMEs), which form the backbone of the apparel export industry, the situation is particularly worrisome. These units lack the scale to withstand such tariff shocks. A 25% duty could potentially wipe out their profits or force them to shut down US operations altogether.

Policy experts and industry bodies are calling for immediate government intervention to cushion this segment through:

• Export incentives and rebates

• Diversification support into UK, EU, Middle East, and Latin America

• Fast-tracking PLI (Production Linked Incentive) benefits

• Negotiating relief under a renewed US-India trade framework