• By Dr Ajay Kumar
  • Thu, 14 Aug 2025 12:43 PM (IST)
  • Source:JNM

Whatever the underlying motives, perverse Trump’s tariffs will harm all parties. While targeted countries face higher barriers and reduced competitiveness, USA risks even greater damage through higher consumer costs, disrupted supply chains, and retaliatory measures. Here, I will analyse Trump’s tariffs on India. The US has exempted software and services, mobile phones, and pharmaceuticals, recognising that disruptions in these would severely impact its own economy. Tariffs target 15 per cent of Indian exports, covering textiles and apparel, furniture, bedding, carpets, machinery, metals, jewellery, auto-parts, petroleum, shrimp, and chemicals. The US presumably believes that these measures will pressure India into accepting its trade terms. The reality, however, is less favourable for the US. India might face some difficulty, but USA is likely to bear much greater economic cost. I will try to illustrate this with the textiles and apparel sector—often considered India’s most vulnerable—and examine how the economic impact is likely to unfold. If the effect on the US in textiles is this severe, it will be even more damaging in other sectors.

India’s textile and apparel exports total USD 35 billion, with USD 8.4 billion going to the USA (2024–25 data). Other major markets include the EU, UK, Japan, Australia and the Middle East. The EU is far larger, importing over USD 400 billion annually compared to USD 107 billion by USA, offering ample scope for deeper Indian penetration. The UK imports USD 27 billion, and India’s recent FTA has eliminated duties, giving exporters an 8–12 per cent cost advantage over Chinese suppliers. As Japan and South Korea diversify sourcing away from China, India can capitalise through CEPAs offering zero/reduced duties. Australia, under the 2022 Economic Cooperation and Trade Agreement, offers similar duty-free access. Additional opportunities exist in other emerging markets. While US tariffs may cause short-term pain, India can realign its exports with minimal long-term damage. Government support could further ease this transition. With India’s total exports exceeding USD 825 billion growing at a healthy 6 per cent, impact if any on USD 64 billion exports to USA can be easily absorbed by India.

Tariffs on Indian textiles will raise prices for USA consumers, especially for niche products where alternatives are limited. India, the largest exporter of specialty items like pashmina shawls to USA, faces demand that is inelastic—leading to price hikes of up to 50 per cent and a sharp drop in consumer surplus. Even if some switch to alternatives, the loss of choice and value further harms consumers. Similar impacts affect other niche goods like Banarasi, Kanchivaram sarees, and Patola, making tariffs particularly damaging for these categories.

Non-niche products, on the other hand, are highly elastic and have strong substitutability. With India facing 50 per cent additional tariff, big retailers in USA, like Walmart or Target, can shift to alternative suppliers. China, Vietnam, Bangladesh and India supply nearly 60 per cent of US imports. Under the new tariffs, India faces 50 per cent, China 34 per cent, Vietnam 20 per cent and Bangladesh 20 per cent. Assuming these tariffs pass through, USA consumers will pay, on an average 18 per cent higher on textiles and apparels. Demand is likely to shift towards Vietnam and Bangladesh or third countries due to lower tariffs. However, these countries which cater only to 19 per cent of current demand cannot suddenly increase capacity to cater 57 per cent of the demand. This is bound to lead to a price surge. Estimates show that despite demand shift, USA customer will still see a 15 per cent price increase. When Texas families will face a 15 per cent rise in back-to-school clothing prices, the impact will hit home. While tariffs target foreign producers, the political backlash will come from American consumers. USA imported over USD 108 billion in textiles and apparel in 2024, meaning tariffs could add USD 15 billion in costs to consumers, reducing their purchasing power. Retailers will also face reshoring costs—supplier switching, transport, and compliance—which will be passed on to shoppers. Brands like Gap and Nike, accustomed to consolidated orders from India and China, may face split supply chains, leading to production delays, quality control challenges, and potential reputational damage.

Given the large share of apparel in household consumption baskets, sustained price rises will add to overall inflationary pressure, resulting into tighter monetary policy — a move that could slow USA economy. USA tariff revenue won’t increase significantly either. As demand shifts from high-tariff countries like India and China to lower-tariff ones, actual collections stay low. Moreover, higher prices may reduce demand, lowering tariff revenue further. The US may also face job losses. Despite claims that tariffs could revive domestic production, the apparel industry lacks large-scale capacity for rapid substitution. Instead, tariffs may squeeze margins, cause store closures, and cut jobs in design, distribution, logistics and retail.

The imposed tariffs are also leading to adverse social repercussions in the US. Indian-origin entrepreneurs dominate import from India, wholesale, and retail businesses in key hubs like New York, New Jersey, Los Angeles, and Chicago. They not only manage supply chains from India but also control distribution to major USA department stores, fashion brands, and e-commerce platforms. By targeting this community, the tariffs have inadvertently hurt both the Indian diaspora and the broader American economy. Beyond economics, the Indian-American community’s growing political influence through mobilisation and policy advocacy adds another layer of impact.

President Trump’s unwarranted tariffs risk setting back the India–US partnership significantly. It is important to remember that for much of the post-independence era, the relationship between our two nations remained distant and distrustful, with the first signs of real warmth emerging only at the turn of the century. Having served in the Ministries of Electronics and IT and Defence during this transformative phase, I have had the privilege of contributing to the growth of India–US trade in these sectors and witnessing their evolution into a strong pillar of our economic and strategic engagement. It is therefore deeply concerning that politically driven, short-term trade measures could erode the hard-won progress of over two decades.

Trade hostility risks contaminating cooperation in unrelated areas such as technology cooperation or defence partnership where mutual trust is a key enabler. At a time when US strategic interests call for deeper engagement with India to balance China’s rise, trade frictions risk pushing New Delhi toward alternative partnerships. The damage from such a shift would be measured not just in lost trade, but in lost geopolitical advantage.

(The author is the Chairman of UPSC and former Defence Secretary of India. The view expressed in this article are his own.)