“Still, a shock,” Indian manufacturers told Sourcing Journal, as the impact of the 25 percent U.S. tariff on Indian exports rippled through markets.
The tariff, announced by President Trump on Truth Social on Wednesday, came just as India was being seen as an increasingly vital sourcing destination. Over the past few months, India had begun positioning itself for a larger role in global apparel exports, especially as other sourcing nations in Asia were hit with steep U.S. tariffs announced in April: at the time, Vietnam at 46 percent, Cambodia at 47 percent, Sri Lanka at 44 percent, and Bangladesh at 37 percent.
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Indian manufacturers had begun drawing up aggressive growth plans, factoring in the newly unfavorable environment for their competitors.
But since then, the playing field has shifted. Vietnam’s tariff was negotiated down to 20 percent earlier this month, Indonesia’s to 19 percent, and Bangladesh to 35 percent and Sri Lanka’s to 30 percent. India’s tariff, in contrast, was reduced by just one percentage point—from 26 to 25 percent.
“It’s not good news,” said Sanjay K. Jain, chair of the ICC National Textiles Committee. “Suddenly everyone feels it is a disaster for India. But is it so bad? India, in any case, doesn’t have the capacity for more than 10 percent growth at the moment. Capacity is being built, driven by U.K demand and other buyers who have already committed to India.” He said that a tariff of less than 20 percent had not been expected anyway. “So, yes, it’s a five percent hit—maybe the bullish sentiment is gone, but we’re not bearish either. India is still in a strong position and normal apparel growth will continue.”
Among his recommendation to help the industry, and reduce the pain—is to remove the 11 percent import duty on U.S. cotton, which would immediately boost competitiveness. “If the U.S. cotton duty is removed, prices will be more attractive, benefiting exports of value-added garments and home textiles. This would help offset the tariff impact,” he said.
Exporters and analysts are urging patience, noting that political posturing remains in play, and upcoming diplomatic engagements—including the scheduled U.S. delegation visit to India in August—could reopen negotiations. However, concern grew after President Trump also mentioned additional trade penalties tied to India’s energy purchases from Russia.
Trump’s comment that “India was a dead economy” was met with sharp criticism, too.
India’s economy grew by over 6.5 percent in 2024, compared to U.S. GDP growth of 2.8 percent.
Speaking in Parliament on Thursday, commerce Minister Piyush Goyal reaffirmed that India’s interests would be safeguarded and highlighted the country’s status as the world’s fastest-growing major economy, on track to becoming the third-largest in terms of GDP. “The government is assessing the impact of these new tariffs, which come in addition to the 10 percent baseline duty imposed since April,” he said. He also spoke about the fact that negotiations were still on, with five rounds of physical discussions, and more in virtual meetings already taking the agreement on the Bilateral Trade Agreement (BTA) with the U.S and India towards a more balanced negotiation.
“The terms of reference were finalized in March, and we’re working towards a mutually beneficial trade pact,” he said, while emphasizing that India would “take all necessary steps to protect national interests.”
He praised the contributions of Indian farmers, small businesses, and industry leaders, reaffirming that their interests would be protected in all upcoming trade decisions.
Industry players, meanwhile, expressed surprise that India hadn’t secured a better deal, citing possible repercussions on employment and small businesses.
“The U.S. is a key market for Indian apparel exports. In 2024, 33 percent of India’s apparel exports went to the U.S.,” said Sudhir Sekhri, chairman of the Apparel Export Promotion Council (AEPC). “India’s share in the U.S. apparel import market has grown from 4.5 percent in 2020 to 5.8 percent in 2024, ranking fourth among major exporters.”
According to AEPC, India’s top apparel exports to the U.S. include cotton T-shirts (9.71 percent), women’s or girls’ cotton dresses (6.52 percent), and babies’ cotton garments (5.46 percent). These three categories account for 10 percent, 36 percent, and 20 percent of total U.S. imports of these products globally.
“The 25 percent tariff is higher than expected, but it’s manageable as long as Vietnam and Bangladesh don’t see further tariff reductions,” Sekhri added. “Exports may slow until an interim Bilateral Trade Agreement (BTA), hopefully concluded between October and December 2025. The penalty clause is a grey area—we expect the government to address this before August 1.”
The added penalty clause—linked to India’s military and energy ties with Russia—has raised fresh concerns over the $190 billion bilateral trade relationship, which includes a $45 billion deficit on India’s side.
“Remember, while India is our friend, we’ve done relatively little business with them because their tariffs are among the highest in the world,” Trump posted on Truth Social. “They also impose the most strenuous and obnoxious non-monetary trade barriers. India buys most of its military gear from Russia and is one of Russia’s largest energy customers. These are not good things. Starting August 1, India will pay a 25 percent tariff—plus a penalty.”
Rahul Mehta, Chief Mentor of the Clothing Manufacturers Association of India (CMAI), called the 25 percent tariff a “surprising twist.”
“If these terms are implemented, Indian products will be 7–10 percent more expensive than some competitors. That will hurt apparel exports to the U.S. Fortunately, we’ve just signed a free trade agreement with the UK, and the one with the EU is progressing quickly,” he said.
Final tariff numbers for other sourcing countries are still awaited. Negotiations for Bangladesh have been on this week, with manufacturers in Dhaka telling Sourcing Journal that they “expect a drop to under 18 percent.” That’s being closely watched, as Bangladesh remains one of the largest apparel exporters after China and manufacturers in India observed wryly that retailers and big brands are ‘usually poised to shift sourcing to the lowest-cost locations’, and more so, as global production costs rise.
Market volatility remains a top concern. “The lack of clarity on the penalty amount adds to the uncertainty,” said Rakesh Mehra, chairman of the Confederation of Indian Textile Industry (CITI).
Others pointed towards the silver lining, that despite everything, India still holds a price advantage over Bangladesh, Sri Lanka, and Cambodia, based on the numbers so far.
They also felt that the many opaque terms of agreement made in the deals struck with other countries were also best avoided.
Analysts have noted the same. “A deal may still emerge, but only on fair terms,” think tank Global Trade Research Initiative (GTRI) noted. “India’s principled stand has helped it avoid a one-sided agreement. That itself is a win.”
GTRI added that some of the deals with Vietnam and Japan showed “contradictions in understanding” on both sides.
Others pointed out that India’s vertical integration from fiber to finished garment, and the country’s relative political and economic stability compared to others in the region, would still stand it in good stead as a strong sourcing country,
All eyes are now on what happens next.
