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The 90-day pause in US reciprocal tariffs on most countries, except China, is a temporary relief for Indian exporters
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The 90-day pause in US reciprocal tariffs on most countries is a temporary relief for Indian exporters as orders put on hold can now be shipped. But there is persistent uncertainty on who would bear the burden of the 10 per cent baseline tariffs that are still in place as it could put exporters’ profits under stress.
Exporters are also concerned that competing countries, such as Vietnam and Bangladesh, may offer discounts to US buyers to compensate for the baseline tariffs which would force them to do the same. Such countries getting into early tariff pacts with the US before India is able to seal the proposed India-US bilateral trade agreement (BTA) is another concern.
Tariff on China
However, China being slapped with a steep 125 per cent tariff spells opportunities in at least some sectors in India.
“The roll back of additional reciprocal tariffs while maintaining a baseline tariff of 10 per cent is not good enough as it is still going to lead to price rise in the US and a demand slowdown. The big question is who pays this 10 per cent? Is it the consumer, the importer, the exporter or do they all share? Whatever the case may be, there will be demand contraction as well as margin contraction in the industry,” pointed out Sanjay Jain, ICC Chairman of Textile Committee and MD TT Ltd.
When US President Donald Trump announced reciprocal tariffs of 26 per cent on India on April 2, US buyers were looking for deep discounts up to 13 per cent, pointed out Ajay Sahai, Director General, FIEO. With the postponement of the reciprocal tariffs, they would still look for a discount, but at a lower rate, possibly round 3-5 per cent which may put pressure on profits, he said.
Countries that were slapped higher reciprocal tariffs on April 2 have come at an equal level after its postponement and India has lost its advantage with its Asian competitors.
“Vietnam was one of the hardest hit by reciprocal tariffs, but now it is at a same level as India. If Vietnamese exporters offer discounts to buyers, there will be pressure on Indian exporters too,” Sahai said. Things would get even more complicated if a competing country reached a tariff agreement with the US before India could wrap up its BTA negotiations with the US.
Competitiveness
Sahai made a case for the government to help Indian exporters maintain their competitiveness in the uncertain situation by reinstating the interest equalisation scheme with an interest subsidy of 5 per cent and extending the popular RoDTEP scheme beyond September 30.
The fact that China, engaged in a tariff war with the US, was totally out of the picture was a silver lining but India would need to work hard to take advantage.
”For India to get even a part of China’s share of $30 billion in US market for textiles & garments, it will need to ensure its MMF raw material prices are competitive otherwise competitors will get fabric from China and sell to the US at lower costs,” Jain said.
Published on April 10, 2025
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