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The recent imposition of a 50% tariff by the United States on Indian textiles has sent shockwaves through Tamil Nadu's textile belt, a region renowned as India's knitwear capital. This drastic measure, announced by US President Donald Trump, threatens to cripple the industry, leading to order cancellations, diversions to competitor nations, and potential job losses for hundreds of thousands of workers. Tiruppur, Coimbatore, and Karur, the major hubs within this belt, collectively employ over 1.25 million individuals and contribute a staggering Rs 45,000 crore to the nation's economy through annual garment exports. The sudden shift in trade policy has shattered the optimism that had been building just weeks prior, fueled by the prospect of the India-UK Free Trade Agreement (FTA) and the increasing interest of US buyers in Indian goods due to elevated tariffs on China and Myanmar. Now, the textile industry faces an uncertain future, grappling with the immediate and long-term consequences of this trade barrier. The imposition of these tariffs comes at a particularly inopportune moment, as Tamil Nadu's textile sector was gearing up for a significant rebound in US orders. Exporters had even invested in new machinery in anticipation of the increased demand. However, the retaliatory tariffs, particularly concerning China, which now stand at 30% and could potentially decrease further upon a trade agreement with the US, have cast a dark shadow over the industry's prospects. The revised duties, including baseline and remedy-linked tariffs, have escalated the effective rates for certain knitted garments to as high as 64%, rendering Indian products significantly more expensive compared to those from regional competitors. The situation has been described by exporters as a 'de facto trade embargo,' underscoring the severity of the impact. The immediate effects of the tariff hike are already being felt by exporters in Tiruppur. Orders are being paused, redirected to countries with lower tariffs such as Bangladesh, Pakistan, Vietnam, and Cambodia, or even lost entirely. One exporter reported that a regular US shipment had already been diverted to Pakistan, while another revealed that an American buyer had requested to 'hold on' before confirming a summer order. Adding to the challenges, buyers were previously demanding that exporters absorb a 25% tariff hike, a burden that has now doubled overnight, further straining already thin profit margins. The President of the Tiruppur Exporters' Association (TEA), K M Subramanian, has voiced deep concern over the potential ramifications of the tariff hike. He anticipates that standalone exporting companies will be the first to bear the brunt of the impact. With margins already razor-thin, ranging from 5% to 7%, exporters are struggling to absorb the increased costs. While a diversified buyer base in Europe and the Middle East may provide some cushion, the impact on the sector is expected to be significant. Subramanian warns that non-branded buyers are likely to shift immediately to cheaper alternatives, while branded buyers, who value social compliance and operating protocols offered by Indian exporters, may stay but will still experience financial losses. The textile industry is a labor-intensive sector, and the prospect of job losses looms large if the market shrinks. It is estimated that a 10-20% contraction in exports due to the loss of orders could threaten 100,000-200,000 textile and garment jobs collectively in Tiruppur, Karur, and Coimbatore over the next few months. Tiruppur, a major contributor to knitwear exports, supplies global giants such as Walmart, GAP, and Costco, accounting for 55% of the country's knitwear exports. The region had aimed to expand its exports by 10-15% in FY2025-26, but the current outlook is bleak, with analysts forecasting a 40-50% decline in US-bound orders, particularly in cotton and knitted apparel segments. The repercussions of the tariff hike extend beyond garments to encompass home textiles, a sector significant in Coimbatore and Karur. Order stagnation has already commenced, with buyers deferring or holding off on their summer bookings for bed linens and towels, crucial products typically finalized by October. K Selvaraju, the Secretary General of the Southern India Mills’ Association, has reported that clients are expressing a 'hold on' sentiment regarding advance inquiries. Missing the summer booking window would have significant financial consequences for the home textile industry. Karur alone exports approximately Rs 9,000 crore in home textiles annually, with Rs 6,900 crore representing direct exports. Coimbatore mills also contribute significantly to the US market with cotton towels and kitchen linens, which are now subject to the higher duties. The tariff hike is not an isolated issue, but rather exacerbates an already challenging environment. India's 11% import duty on cotton and a GST duty inversion further undermine competitiveness. While polyester raw material is taxed at 18% and yarn at 12%, finished garments are taxed at only 5%, adding 6-7% to export costs, an issue that competitors do not face. Furthermore, the quality of cotton imports from Brazil, which constitute 45% of this year's inbound shipments, is under scrutiny for not consistently meeting US-mandated standards. Selvaraju has urged the Indian government to negotiate a cotton-forward deal, offering duty-free access to US cotton in exchange for apparel exports made from it. The global textiles market is intensely competitive, and India's key rivals enjoy a significant advantage as they do not face such punitive tariff hikes. Bangladesh maintains an effective rate of 35-36%, Pakistan has negotiated a 19% tariff, Vietnam is at 20-21%, and Cambodia, although previously at 49%, now benefits from a 19% rate following an August 1 revision. India's 50% penalty rate stands out as an isolated and unprecedented measure. A Tiruppur manufacturer admitted to losing a shipment to Pakistan due to price advantages. Subramanian emphasizes that Bangladesh is India's fiercest competitor in the US market, with its significantly lower tariff rate of 20%. This advantage is particularly crucial when profit margins are already thin. With total duties reaching 64%, non-branded US buyers are readily shifting to cheaper alternatives. Industry leaders are advocating for immediate policy relief. Selvaraju has called for the reinstatement of the extended credit guarantee-linked scheme that was implemented during the pandemic. He also emphasizes the need to eliminate the 11% cotton import duty and restructure the GST regime on manmade fibers. For Indian exports to remain competitive, the tax on all raw materials must be below 5%. Failure to address these issues could lead to a permanent loss of market share to competitors like Bangladesh, Cambodia, Vietnam, and Pakistan, all of whom now offer cheaper landed prices in the US. The resulting ripple effect – order shrinkage, idle capacity, and job losses – is already underway. Selvaraju maintains that the US market still values Indian cotton and manufacturing quality, but political and policy obstacles are hindering trade. Ramdas, a factory owner in Tiruppur, believes that the next two to three weeks will be crucial in determining the extent of cancellations. While cancellations have not yet occurred, there is a growing sense of caution among industry players. Despite the challenges, there is cautious optimism. Subramanian believes that the industry can survive this downturn with swift action from the Indian government, drawing on lessons learned during the COVID-19 pandemic. He emphasizes ongoing discussions with the central government and urges negotiations with the US. Some exporters also hope that pressure from major American brands concerned about higher retail prices may eventually prompt a reevaluation in Washington. The situation facing the Tamil Nadu textile industry is dire, but not without potential for recovery. The swift and decisive implementation of supportive policies is crucial to mitigate the negative impact of the US tariffs and ensure the long-term viability of the sector.
Source: Knitwear to apparel, Tamil Nadu’s textile belt starts feeling US’s 50% tariff heat