 |
|
The imposition of steep 25 percent US tariffs on Indian apparel exports has ignited serious concerns within the Indian textile industry, raising the specter of widespread job losses and economic disruption. Apparel exporters are warning that they will be forced to sell their products below cost to remain competitive and avoid laying off significant portions of their workforce. This situation is exacerbated by the fact that the US tariffs on India are higher than those imposed on over 50 other countries, including major competitors like Bangladesh and Pakistan, placing Indian exporters at a distinct disadvantage. The Apparel Export Promotion Council (AEPC) has urgently requested government intervention to mitigate this “huge setback,” emphasizing that exporters are facing immense pressure and have their “back against the wall.” The United States constitutes a pivotal market for Indian Ready-Made Garments (RMG) exports, accounting for a substantial 33 percent share of India's total garment exports in 2024. India’s presence in the US garment import market has been steadily growing, with its market share increasing from 4.5 percent in 2020 to 5.8 percent in 2024. This growth underscores the importance of the US market to the Indian apparel industry, and the potential impact of the new tariffs is significant. The top three most exported products from India to the US are cotton T-shirts (9.71 percent), women's or girls' dresses of cotton (6.52 percent), and babies' garments of cotton (5.46 percent). These products hold significant shares in the US total imports of these items globally, further emphasizing the importance of maintaining competitiveness in this market. While China remains the leading exporter to the US with a 21.9 percent market share in 2024 (down from 27.4 percent in 2020), the combined market share of China, Vietnam, and Bangladesh accounts for 49 percent of US apparel imports. Notably, tariffs on China remain at 30 percent, while tariffs on Vietnam and Bangladesh are set at 20 percent, highlighting the relatively unfavorable treatment of Indian exports. The US is India's largest export market for the labor-intensive Indian textile and apparel industry, with India exporting $10.91 billion worth of products under this category in FY25. A steep 25 percent tariff would render Indian products uncompetitive compared to those from Bangladesh, potentially leading to a significant decline in export volumes and revenue. The textile industry has been a key driver of growth in the US market, contributing to India's growing bilateral trade surplus with the US. A Morgan Stanley analysis indicated that India's bilateral goods trade surplus with the US has doubled over the last 10 years, growing from $20 billion in FY15 to $40 billion in FY25. This increase has been primarily driven by higher surpluses in sectors like electronics, pharmaceutical products, and textiles. The imposition of these new tariffs poses a significant threat to this positive trend and could potentially undermine the overall trade relationship between the two countries. The ongoing India-US trade deal negotiations have been stalled due to disagreements over sensitive sectors such as agriculture and automobiles. India is reportedly reluctant to concede to US demands during the ongoing trade negotiations to accept genetically modified (GM) agricultural products such as corn and soya. Agriculture remains a contentious issue between the two countries, with the United States Trade Representative (USTR) previously flagging restrictions on its GM products by countries as discriminatory. The current trade tensions and the imposition of these new tariffs further complicate the already challenging negotiations and could potentially delay or derail the prospects of a comprehensive trade agreement between India and the United States. The situation highlights the vulnerability of Indian exporters to external trade policies and the need for proactive measures to mitigate the potential impact of such measures. The Indian government needs to engage with the US administration to address these concerns and seek a more equitable trading relationship. Furthermore, the Indian government needs to provide support to the domestic apparel industry to enhance its competitiveness and resilience in the face of global trade challenges. This support could include measures such as providing financial assistance, promoting technological upgrades, and facilitating access to new markets.
The potential consequences of the US tariffs extend beyond the immediate impact on Indian apparel exporters and could have far-reaching implications for the Indian economy. The textile industry is a significant employer in India, providing livelihoods for millions of people, particularly in rural areas. Mass layoffs in the apparel industry would not only result in widespread unemployment but also exacerbate poverty and inequality. The social and economic costs of such layoffs could be substantial and could strain the government's resources. Furthermore, the decline in apparel exports could negatively impact India's overall trade balance and contribute to a widening current account deficit. The loss of export revenue could also weaken the Indian rupee and make it more vulnerable to external shocks. The situation also raises concerns about the future of India's export-oriented industries and the need for diversification. Relying heavily on a few key markets and products makes the Indian economy vulnerable to fluctuations in global demand and changes in trade policies. The government needs to promote diversification of the export basket and explore new markets to reduce reliance on traditional partners. This could involve focusing on value-added products, developing niche markets, and strengthening trade ties with emerging economies. The current crisis also underscores the importance of improving the competitiveness of the Indian manufacturing sector. Indian manufacturers need to enhance their productivity, improve their quality standards, and adopt new technologies to compete effectively in the global market. The government needs to create a supportive ecosystem for manufacturing by investing in infrastructure, streamlining regulations, and providing access to finance. The India-US trade dispute also highlights the complex geopolitical dynamics that shape international trade. Trade is no longer solely an economic issue but is increasingly intertwined with political and strategic considerations. The United States, under its current administration, has adopted a more protectionist stance and is increasingly using tariffs as a tool to exert pressure on its trading partners. This has created uncertainty and instability in the global trading system and has forced countries like India to recalibrate their trade strategies. In response to the US tariffs, India needs to explore alternative trade arrangements and strengthen its relationships with other countries. This could involve deepening its engagement with regional trade blocs such as the Regional Comprehensive Economic Partnership (RCEP) and pursuing bilateral trade agreements with key partners. India also needs to work with other countries to reform the World Trade Organization (WTO) and ensure that it remains a relevant and effective institution for governing international trade. The current situation is a wake-up call for the Indian government and the Indian business community. It highlights the need for greater resilience, diversification, and competitiveness in the face of global trade challenges. By taking proactive measures to address these challenges, India can ensure that its economy remains on a path of sustainable growth and development.
In the long term, the Indian government needs to prioritize structural reforms to improve the overall business environment and make India a more attractive destination for investment. This includes reforms in areas such as land acquisition, labor laws, and taxation. Simplifying regulations, reducing bureaucratic hurdles, and improving the ease of doing business are essential for attracting foreign investment and promoting domestic entrepreneurship. Furthermore, the Indian government needs to invest in education and skills development to create a workforce that is equipped to meet the demands of the modern economy. This includes promoting vocational training, upgrading technical skills, and fostering innovation. A skilled and productive workforce is essential for driving economic growth and improving competitiveness. The government also needs to promote research and development (R&D) to foster innovation and technological advancements. Investing in R&D can help Indian companies develop new products and processes that can compete effectively in the global market. The government can also provide incentives for companies to invest in R&D and collaborate with universities and research institutions. In addition to these structural reforms, the Indian government needs to strengthen its social safety net to protect vulnerable populations from the negative impacts of globalization and trade liberalization. This includes providing unemployment benefits, job training programs, and social assistance to those who are displaced by trade. A strong social safety net can help to mitigate the social costs of trade and ensure that the benefits of globalization are shared more widely. Finally, the Indian government needs to engage in proactive diplomacy to shape the global trade agenda and promote a more fair and equitable trading system. This includes working with other countries to reform the WTO and ensure that it addresses the concerns of developing countries. India also needs to play a leading role in promoting regional economic integration and strengthening trade ties with its neighbors. By taking a proactive and constructive approach to international trade, India can help to create a more stable and prosperous global economy. The situation with the US tariffs serves as a reminder of the interconnectedness of the global economy and the importance of pursuing sound economic policies. By focusing on structural reforms, investing in education and skills development, promoting innovation, and strengthening its social safety net, India can build a more resilient and competitive economy that is able to withstand the challenges of globalization. Ultimately, the success of India's economic development will depend on its ability to adapt to a changing world and to seize the opportunities that globalization presents. The textile industry, with appropriate governmental support and strategic recalibration, can continue to be a major contributor to the Indian economy, bolstering trade and providing essential employment for millions.
Source: Indian apparel exporters warn of ‘mass layoffs’ over US tariffs