India-US deal uncertainty puts over $2 billion worth of summer apparel orders & jobs at risk
Negotiations between Indian apparel manufacturers and US importers have stalled for summer orders, worth around $2 billion for Indian exporters, exporters told The Indian Express. This comes amid uncertainty among domestic suppliers about the tariff rates that would apply once the India-US trade deal is concluded. The joint statement released by the two countries in February this year stated that an agreement would be reached by fall.
The absence of a trade deal would push the bulk summer orders to the country’s competitors, such as Bangladesh, Vietnam and even China, which face lower tariffs compared to the highest tariffs of 50 per cent imposed on India. Industry sources said that orders are already shifting to other countries, and missing the summer orders could have a long-term impact.
“Even if we are informed that the additional oil-related tariffs of 25 per cent could be removed since the energy-related issues seem to be getting resolved, we will be able to move forward with our order-related negotiations. And if the deal is not happening, we can completely focus on other markets. But the uncertainty cuts both ways,” an industry source said, on the condition of anonymity.
The stalled negotiations between Indian exporters and the US importers assume significance as India exported $10.3 billion of textiles and apparel (T&A) to the US in 2024. The share of T&A in India’s world exports was 8.21 per cent in 2023-24. The supply chain of apparel and textiles is largely domestic, as about 90 per cent of the inputs are sourced domestically, indicating the labour-intensive nature of the sectors.
“There is large-scale uncertainty on future work in Tiruppur as fresh orders have completely stopped. Workers who left during Diwali have stayed back because of a lack of work. Fresh tariff negotiations between India exporters and US buyers have also paused due to a lack of clarity on the trade deal. Typically, summer orders begin coming in at this time. This is particularly stressful for Tiruppur as 35 to 40 per cent of the production in the cluster goes to the US,” Raja Shanmugam, a Tiruppur-based textile entrepreneur and non-official member of the Board of Trade (BoT), said.
Shanmugam said that Tiruppur exports garments worth nearly Rs 14,000 crore to the US during four seasons and estimates that the loss of summer orders will cost the Tiruppur cluster close to Rs 7,000 crore. “The government has rolled out an export promotion mission and moratorium, but they largely protect the lender. During the BoT meeting, we asked about subsidising the difference between the Indian tariff rate and the competitors. More pronounced impact of tariffs will begin showing in March,” Shanmugam said.
Champalal Bothra, chairman of the Textile and Garment Committee at CAIT, said that summer orders as well as other negotiations have become a problem, and the textile sector is under stress; however, manufacturers are looking at more e-commerce exports and the domestic market to shift the focus.
“Export orders come in advance. Buyers need to place orders according to new trends, fashion, and preparations that need to begin in advance. US tariffs have cut that off, and fresh orders are going elsewhere. This will affect Tiruppur more as their presence online is less. But businesses that are managing to pivot to domestic demand are adapting,” Bothra said.
Unlike other products, apparel and textile products are not finding markets elsewhere, as per the trade data released by the Ministry of Commerce and Industry for September. While high-margin products such as electric machinery and auto components are being absorbed by other countries, ready-made garments, particularly cotton-based, declined over 6 per cent in September.
However, the government has taken steps to aid the sector by easing duty on key raw materials, revoking several quality control orders impacting the textile supply chain and addressing the MSMEs’ access to input material.
Scenario 1: 50% tariffs persist
A 50 per cent tariff on India will result in $6.6 billion or a 67.8 per cent fall in US import demand for Indian T&A, an Indian Institute of Foreign Trade (IIFT) research report authored by Professor Sunitha Raju said.
“This negative effect is highest for fibre (-95.8 per cent), followed by Yarn (-87.5 per cent) and fabrics (-82.9 per cent). However, in absolute values, Made-ups and Apparel account for US$5.7 billion or an 85 per cent fall in the T&A exports to the US,” the report said.
India’s tariff being higher relative to the competitors, China, Vietnam and Bangladesh will have significant market share gains for apparel and Pakistan, Mexico and China for made-ups. Thus, these tariff differentials are adversely influencing the competitive landscape in the US market, it said.
Scenario 2: Tariff halved to 25%
With a 25 per cent tariff, the negative demand effect is about $2.1 billion, translating into a 21.6 per cent fall in imports across product groups. In absolute terms, the fall in import demand is highest for made-ups ($921 million), followed by apparel ($788 million), as these two product groups account for an 81 per cent fall in the import demand.
According to the report, even though small firms co-exist with large firms in the textile industry, textile exports are dominated by large firms. However, the impact of the US tariff shock affects all producers in the textile industry and is transmitted through many domestic suppliers, with nearly 70 per cent of sectoral value derived from intermediate inputs first-order indirect effects are substantial, totalling $ 4.6 billion, including $ 1.4 billion within the textile sector.
“As only 24 per cent of the textile production is exported and 76 per cent caters to the domestic demand in India, the indirect effect is muted…As retailing has a high fixed cost, e-commerce has facilitated the growing B2C relationships. While the tariff shock may not affect the domestic B2C costs, it will hurt exports. As this platform facilitates small producers to export, adverse action by these big retailers will impact the small producers and exporters,” the report said.
