US buyers seek price cuts, freeze orders, exporters turn to Centre for relief

Indicating that lower reciprocal tariffs may not be an absolute advantage, exporters expressed concern about emerging competitors — such as Kenya for tea exports, Japan and South Korea for machinery, Ecuador for marine products and Turkey for apparel — who may gain ground due to a duty advantage in the US market. These countries are not traditional rivals, but may now eat into India’s share, exporters said.

Although reciprocal tariffs on Indian goods are lower as compared to several manufacturing-centric countries, many exporters are facing uncertainty as contracts are set to be renegotiated. US buyers are pushing for a duty pass-through, which could result in an additional 13 per cent duty burden on Indian products — potentially wreaking havoc on low-margin exports like apparel and marine goods.

“All orders to the US are on hold as fresh calculations on the impact of the duty need to be done. Buyers and sellers may renegotiate the contract and share the duty. Since the reciprocal tariff on India is 26 per cent, the burden will likely be split between the two. But the problem is that several products — such as apparel, leather and marine goods — have low margins and may not be able to absorb the cost,” said Ajay Sahai, Director General and CEO of the Federation of Indian Export Organisations (FIEO).

Meanwhile, think tank Global Trade Research Initiative (GTRI) has projected that India could see a decline of $5.76 billion, or 6.41 per cent, in exports to the US in 2025. According to official US data, India exported goods worth $89.81 billion to the US in FY24. The think tank estimated that exports of fish and crustaceans may fall by 20 per cent, iron or steel articles by 18 per cent, and diamonds, gold, and related products by 15.3 per cent.

“Vehicle and parts exports are projected to drop by 12.1 per cent, while electrical, telecom and electronic products may decline by 12 per cent. Other categories such as plastics and articles thereof (-9.4 per cent), carpets (-6.3 per cent), petroleum products (-5.2 per cent), organic chemicals (-2.2 per cent) and machinery (-2.0 per cent) are also expected to be negatively impacted,” it said.

Sahai said exporters would require government support in the form of interest equalisation and the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme to tide over the situation, at least until India signs a Bilateral Trade Agreement (BTA) with the US. Exporters are banking on the BTA to secure tariff relief.

“In the short term, there will be issues. But in the long term, India has the duty advantage, raw materials and competitive wages to deliver orders. However, we have sought support from the government for the near term,” said Rajendra Kumar Jalan, Chairman of the Council for Leather Exports (CLE).

GTRI said India exported $457.7 million worth of footwear to the US in 2024, with the US accounting for 18.3 per cent of India’s global footwear exports. Earlier subjected to an average tariff of 8.8 per cent under Most Favoured Nation (MFN) terms, Indian products will now face 43.5 per cent duty, it said.

“Despite the increase, India is expected to see a modest rise in exports, thanks to its competitive edge over top suppliers like China, Vietnam, and Indonesia. India currently holds a small 1.61 per cent share of the US market, but exports are projected to grow by 3.1 per cent, or about $14.2 million,” GTRI said.

Apparel exporters said that orders have been put on hold, but not cancelled yet. However, the industry is concerned about the prospect of a decline in demand and the possibility of selective relief being extended to countries like Bangladesh and Cambodia.

“Customers are seeking discounts, and new orders are, by and large, on hold. There is a long-term advantage for India in the US apparel market, given the tariff differential it now enjoys vis-à-vis major apparel-exporting countries like China, Bangladesh, Vietnam and Cambodia. However, in the short term, the industry needs relief. We have asked the government to create a market diversification fund, as well as a dedicated export promotion fund, to facilitate easier market access to the US,” said Mithileshwar Thakur, Secretary General of the Apparel Export Promotion Council (AEPC).

Thakur further suggested tweaking the existing PLI scheme for textiles by lowering the investment threshold and expanding the product basket, among other measures, to spur and stimulate investment for capacity augmentation.

GTRI also noted that India’s clothing and made-up exports to the US continued to grow in 2024, even as US tariffs surged. The US bought $2.52 billion worth of India’s non-knitted apparel last year — around 31 per cent of India’s global exports in this category.

Although tariffs jumped from 10.3 per cent to 46.6 per cent, Indian exports to the US are still expected to grow by 2.1 per cent, or about $52.9 million, aided by lower costs and a shift in sourcing away from countries like China and Vietnam, the think tank said.