Introduction

In a climate of heightened tariffs, Indian textile businessman Anil Buchasia is confronting a significant challenge: a multi-million rupee tax bill on his clothing exports to the United States. Yet, there’s a silver lining – the situation could have been far more dire.

Impact of Trump's Tariffs on Indian Textiles

With the implementation of broad tariffs by former President Donald Trump on April 2, imports from India faced a 26% tax. This figure is substantially lower than what India’s rivals are facing. For example, China is grappling with hefty tariffs of 54%, while Vietnam is saddled with 46%. Even neighboring countries like Bangladesh and Sri Lanka are facing higher rates, with tariffs at 37% and 44%, respectively.

A Competitive Advantage?

Buchasia sees this as a potential competitive advantage. "In terms of competitiveness, India could be better placed than other countries like Bangladesh and Vietnam," he noted, emphasizing a degree of insulation India may experience in the short run.

US-India Trade Relations

This relatively lower tariff for India comes as a surprise, especially given Trump's frequent criticisms, dubbing India a "tariff king" due to its high duties on US imports. In fact, the US had a steep trade deficit with India, hitting USD 45.7 billion in 2024, which added to the tension.

Negotiations and Concessions

When Trump announced the tariffs, he expressed discontent to Prime Minister Narendra Modi, stating, “You’re a friend of mine, but you’re not treating us right.” Despite this, experts speculate that India’s proactive approach, which involved negotiating concessions, helped mitigate more severe impacts. Unlike the confrontational stance taken by countries such as China and Canada, India quickly began to offer concessions, reducing import duties on products like US bourbon from 150% to 100%, and committing to increase American energy imports significantly.

Strategic Importance of India

India’s relationship with the US is also strategically important. As a counterbalance to China’s influence in the Indo-Pacific, India’s ongoing collaborations in defense and energy, including the potential purchase of F-35 fighter jets, underscore its value to the US.

Future Prospects and Trade Agreements

With trade negotiations between the two countries progressing, the anticipated Bilateral Trade Agreement (BTA), expected to be concluded by autumn 2025, has raised hopes for increased bilateral trade. "We believe India will continue to navigate tariff challenges effectively, engaging through negotiations rather than exacerbating the trade war," said international equity research firm Bernstein in their recent report.

Challenges Ahead

However, challenges remain. Though India's exports only account for a modest 1.8% of global trade, it is still affected by global supply chain dynamics. The ongoing trade war could stifle domestic manufacturing efforts, even with India’s labor cost advantages. Major companies, like Apple, are reassessing their strategies as they increase manufacturing capacity in India while also dealing with complex trade relationships.

Conclusion

As the Indian textile sector looks ahead, the reality is sobering. Exports to the US, valued at USD 10 billion within a broader USD 36 billion textile export portfolio, face uncertainty under the weight of new tariffs. Buchasia has alerted his American clients about the intricacies of these tariffs, hoping to find mutual ground in navigating these financial hurdles.

While pharmaceuticals remain exempt from the tariffs, other highly exposed sectors like diamonds and electronics are bracing for severe repercussions as well. The shadow of uncertainty looms over the trade with the largest consumer market, driving concerns that price increases will inevitably fall on American consumers.

As the global trade landscape continues to evolve under pressures like the US-China trade war, India must strategize not only how to secure its position with existing partners but also how to diversify its trade ties. The question remains: can India sufficiently pivot away from its reliance on the US market to sustain its growth? The answer will define the future landscape of Indian exports in an increasingly complex global economy.