Trump Tariffs Hit India’s Leather MSMEs: Exports, Jobs, and Credit Under Strain

India’s leather and leather-footwear MSMEs—anchored in Kanpur–Unnao, Agra, Chennai–Ranipet–Ambur–Vaniyambadi, and Kolkata—face a sudden external shock after the U.S. doubled tariff rates on Indian imports to as high as 50%, citing India’s continued purchases of Russian crude. A narrow in-transit exemption exists, but forward orders are already being re-priced, deferred, or cancelled. This SMEStreet exclusive dissects the near-term damage from US Tariffs and the playbook MSMEs and policymakers need—fast.

Snapshot (What’s changed)

• Tariff wall: A fresh +25% surcharge on Indian goods is now layered onto earlier 25% reciprocals, taking effective duties on many lines to ~50%.

• In-transit carve-out: Goods loaded and en route before the deadline get limited relief; all new entries face the higher duty.

• Anti-circumvention heat:“Transshipped” goods that try to disguise Indian origin risk an additional 40% levy, with no mitigation.

• Leather exposure: The U.S. is India’s largest leather market (Apr–Dec FY25 share ~21.8%). FY25 exports in leather & non-leather footwear were about $5.7 bn—a higher base now at risk.

Export Impact: Order Cuts, Margin Compression, and Mix Shifts

1. Volume Pressure: With U.S. buyers facing an immediate price step-up, Indian suppliers should plan for a 30–50% near-term volume risk on U.S.-bound leather/leather-footwear lines (SMEStreet estimate based on duty pass-through scenarios, buyer alternatives, and currency effects).

2. Skew by SKU:

   • Fashion/seasonal SKUs (short lead times) are most vulnerable to swift switching.

   • Technical/brand-spec components (lasted uppers, specialty linings) may see partial retention if quality and tooling costs deter switching.

3. Diversion Windows: Capacity should pivot to UAE (CEPA), Australia (ECTA), EU/UK, and selective GCC/Africa lanes where duties are materially lower or MFN barriers are stable.

4. Compliance Red Lines: Paper “re-tagging” via third countries is high-risk; U.S. rules now explicitly weaponize a 40% transshipment penalty. Build only genuine, rules-of-origin-compliant third-country value-addition if at all.

Jobs: Leather’s Labour Intensity Amplifies the Shock

• The leather value chain is employment-intensive (≈4.4 million jobs; ~30–40% women). A U.S.-centric order shock trickles down to tanneries, cutting/stitching units, component makers, finishing, and packaging—most of which are MSMEs with thinner buffers.

• Cluster-level stress will show up first in overtime cuts, shift rationalisation, and temporary idle capacity, especially among contract manufacturers dependent on 1–2 anchor buyers.

MSME Credit & Liquidity: Watch the Working-Capital Squeeze

• High base of exposure:MSME commercial credit outstanding stood around ₹35.0–₹35.2 lakh crore as of end-March 2025.

• What changes now:

  • Bank stance: Expect tighter appraisal on export-linked WC lines (packing credit, post-shipment finance), with scrutiny on buyer concentration, order pipelines, LC terms, and FX cover.

  • Transmission: RBI’s earlier liquidity/easing provides room, but risk appetite will decide whether limits get enhanced or trimmed.

  • Cash-cycle elongation: Re-negotiations with U.S./EU buyers and altered Incoterms can slow collections, pushing MSMEs to bill-discounting, supplier credit, and top-up WC.

Price Competitiveness: Remissions Help, But Don’t Bridge 50%

• RoDTEP/Drawback and IFLDP support remain valuable, but a 50% tariff wall dwarfs current remission rates. The math forces either shared burden (supplier + buyer) or market/sku re-mix.

• FX as cushion: A weaker rupee may partly offset, but not enough to neutralise a 50% duty—ops excellence and design agility become critical levers.

30–90 Day Outlook 

• 0–30 days:Order re-quotes and select cancellations; utilisation dips on U.S.-heavy lines; scramble to redirect capacity to CEPA/ECTA/EU markets.

• 31–60 days: Working-capital pressure peaks; jobs risk rises where diversification is slow; unit economics drives pruning of low-margin SKUs.

• 61–90 days: Stabilisation if finance support + market pivot land; otherwise, persistent under-utilisation in clusters with U.S. dependence.

Action Plan for Leather MSMEs (Practical & Immediate)

1. Defend Existing Accounts—Surgically

   • Offer staggered pass-through and value engineering (material substitutions, component consolidation) to keep lines alive.

   • Renegotiate Incoterms/lead times to protect cash cycles; pair with firm FX hedges.

2. Pivot Markets & Mix

   • Front-load capacity for UAE/Australia/EU/UK—target private-label where origin flexibility is higher.

   • Ramp non-leather/vegan collections to widen buyer pools with different tariff treatment.

3. Finance & Risk

   • Seek temporary WC limit enhancements and interest subvention windows; use CGTMSE/SIDBI-backed lines where collateral is thin.

   • Expand bill-discounting (with buyer confirmations) and supplier-credit programmes to bridge cash gaps.

4. Compliance by Design

   • If using third-country processing, ensure substantial transformation with auditable cost/process sheets; document rules-of-origin rigorously.

   • Train shipping teams on HTS classification changes, CBP guidance, and documentary hygiene (avoid small errors that trigger holds).

5. Operational Levers

   • Line balancing & micro-automation in cutting/stitching; shorten design-to-drop cycles; maintain 2–3 costed alternates per SKU.

   • Double down on sustainability/traceability (LWG, ISO 14001) to defend pricing in non-U.S. markets.

Policy To-Dos (Immediate asks to GoI/States)

• Targeted interest subvention (3–5%) on pre/post-shipment credit for leather MSMEs for 12–18 months.

• Temporary uplift in RoDTEP/Drawback for leather & leather-footwear to cushion the U.S. shock.

• IFLDP fast-track: funding for CETPs, energy-efficiency, and compliance upgrades in clusters to prevent layoffs.

• Market access drive: accelerated UK/EU retail onboarding, dedicated GCC buyer missions, and brand-promotion grants for Indian leather in non-U.S. geographies.

Bottom Line

This isn’t a demand shock—it’s a policy shock. Survival will be about speed of repricing, speed of redirection, and strength of compliance. With smart finance, tight ops, and focused policy backstops, India’s leather MSMEs can hold employment and salvage capacity while new markets absorb displaced volumes.

References (3–5 sources)

1. Reuters: “Trump’s doubling of tariffs hits India, damaging ties” (Aug 27, 2025) – confirms 50% duty level, sectors affected, in-transit window, and jobs risk. https://www.reuters.com/world/india/india-hit-by-us-doubling-tariffs-plans-cushion-blow-2025-08-27/

2. Federal Register / CBP: “Notice of Implementation of Additional Duties on Products of India” (Aug 27, 2025) – implementation & in-transit exemption. https://www.federalregister.gov/documents/2025/08/27/2025-16419/notice-of-implementation-of-additional-duties-on-products-of-india-pursuant-to-the-presidents

3. CBP Bulletin (GovDelivery): “Reciprocal Tariff Updates Effective August 7, 2025” – 40% anti-transshipment enforcement. https://content.govdelivery.com/accounts/USDHSCBP/bulletins/3ec7b5e

4. IBEF Leather Industry Profile (Apr 2025) – industry size, employment ~4.42 mn, U.S. share (Apr–Dec FY25 ~21.8%). https://www.ibef.org/exports/leather-industry-india

5. TransUnion CIBIL MSME Pulse (May 2025) – MSME credit exposure ~₹35.2 lakh crore (as of Mar 31, 2025). https://www.transunioncibil.com/lp/msme-pulse-may-2025