A sharp escalation in US tariffs on Indian goods has put Indian exporters in a bind, with several fearing a wave of cancelled orders during the upcoming festival season. The new 50% duty, announced by US President Donald Trump and effective from August 21, excludes key sectors such as smartphones, pharmaceuticals, and fuels made with non-Russian oil. But it still covers about 55% of India’s total exports to the US.
Exporters say the move hits price-sensitive sectors the hardest. Products like machine-made small jewellery, which have low value addition and narrow margins, will likely become unviable in the US market. The sector is dominated by micro, small and medium enterprises (MSMEs).
“The 50% reciprocal tariff effectively imposes a cost burden, placing our exporters at a 30-35 percentage point competitive disadvantage compared to peers from countries with lesser reciprocal tariff… many export orders have already been put on hold as buyers reassess sourcing decisions in light of higher landed costs. For a large number of MSME-led sectors, absorbing this sudden cost escalation is simply not viable,” media quoted SC Ralhan, president of the Federation of Indian Export Organisations (FIEO), as saying.
In the immediate aftermath of the executive order, exporters rushed to speak with US buyers to understand the potential fallout. Industry executives say garments may shift to Bangladesh and Sri Lanka, while orders for bed linen may move to Pakistan.
“US buyers may shift orders to countries like Vietnam, Bangladesh, and China. It remains to be seen how things unfold in the next few weeks, how our BTA negotiations progress when the US team visits India for the sixth round of talks. Till that time, it is a wait and watch situation,” said Mithileshwar Thakur, secretary general of the Apparel Export Promotion Council (AEPC).
In sectors such as non-leather footwear, including sports shoes and athleisure products, companies planning to work with Indian suppliers may now reconsider their strategies.
While exporters are seeking government intervention, officials and industry experts caution that support options are limited. “Government cannot offer the kind of support that will be required to offset the impact of the US tariffs, it will be illogical to even suggest that. It is good that we are engaged. If something good works out during this 21-day window it is very good, otherwise exporters will have to focus on market diversification,” media quoted Ajai Sahay, director general of FIEO, as saying.
Some hope lies in upcoming trade agreements. India’s free trade agreement with the European Free Trade Association will take effect in October, while a recently signed pact with the UK is still a year from implementation. Even if an agreement with the European Union is reached by the end of this year, full ratification will take time.
Meanwhile, diversification won’t be easy. China, too, is intensifying its efforts in the European and other markets to hedge against uncertainties in US trade policy.
