Textile exports: Advantage India for now as competitors face higher tariffs

The universal and reciprocal tariffs that US President Donald Trump announced on 2 April has put Indian textile and leather sectors at a relative advantage over their peers. This is because the US has levied higher tariffs on India’s main competitors.

Vietnam will suffer a 46% tariff on all exports, while it is 44% on Sri Lanka and 37% on Bangladesh. China, the biggest exporter of textiles and leather into the US, will have to pay 54% more (34% reciprocal tariff and 20% tariffs levied earlier after Trump returned to office in January this year). In comparison, Indian exports will face an additional tariff of 27%. The lower tariff significantly improves India’s competitiveness in the US market. The question is: can India take advantage of this opportunity and increase its market share in the US?

The existing tariffs on the textile and clothing sector, which contributes $10.8 billion in exports, was 8.99%.

India’s textile exports in 2023-24 stood at $35.87 billion. Readymade garments accounted for 41%, followed by home textiles (34%) with products made from man-made fibres, wool, jute, handicrafts and carpets accounting for the rest. The US is India’s largest textile export market. In 2023-24, the US imported textiles worth $10.05 billion, accounting for 28% of India’s overall exports. Apparel makes up the largest share of the export pie.

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“At the current stage, India holds a clear tariff advantage in apparel exports over key competitors like Vietnam and Bangladesh,” said Prabhu Dhamodharan, convenor, Indian Texpreneurs Federation (ITF), a textile entrepreneurs body based out of Coimbatore. The US imports apparels worth $80 billion and China accounts for 21% of its imports, followed by Vietnam (19%), Bangladesh (9%), India (6%) and Sri Lanka (3%).

The tariffs have opened up unexpected opportunities. The 20% tariff on Jordan will help India export man-made textile apparel more competitively. “Jordan is a big player in man-made textile garments and exporters there were exporting to the US at zero duties,” said Kumar Duraiswamy, joint secretary, Tiruppur Exporters Association (TEA). “Now, we can compete effectively."

But industry players fear an immediate slowdown in demand as retailers pass on higher tariffs to the consumers. “The sudden increase in retail prices will force consumers in the US to postpone purchases. We expect export orders to shrink in the near term,” said Dhamodharan.

Who'll capture China?

In the medium to long term, experts see a big opportunity for India to increase its market share in the US if the tariffs remain. One of the main reasons is China. The tariffs Chinese textile exporters will have to pay is a staggering 54% and this pretty much prices them out of the market. India can move to fill in this gap.

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That will not be easy. Indian textile players have to build significant capacity. They need to set up integrated textile facilities and this calls for a large investment. “It is the right time for a production-linked incentive scheme for cotton textiles. It will help the sector ramp up its capacity,” said ITF’s Dhamodharan.

There are other demands from the sector. TEA’s Duraiswamy wants the government to lift the 11.5% import duty that has been levied on cotton imports. “Cotton yield is low this year. We need to import cotton if we have to meet the demand from the US,” he said. The industry is also seeking an interest equalization scheme and a textile upgrade fund.

The story is similar in the case of the leather sector. In 2023-24, India’s leather exports were $4.69 billion, and the US accounted for 19% of it. “As it looks, we are better off than China, Vietnam, Cambodia and Bangladesh. A lot will depend on what steps the affected countries will take,” said Rafeeque Ahmed, chairman at Farida Group, the largest exporter of leather shoes in India.

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What entrepreneurs from both the sectors fear is flooding of Chinese exports into other markets. While they may gain in the US, China has the capability to price Indian players out of markets such as the European Union and the UK.

For now, they hope that India will be able to conclude the bilateral trade agreement with the US, which will then withdraw reciprocal tariffs.