India gets a lower US tariff; here's why textile exporters are still worried

A 10% US tariff sounds like a win for India's textile exporters, but there's a catch.India's textile and apparel sector could still come under pressure in the US market, even though the country has escaped the steeper tariffs imposed on several competing exporters. Although the country faces a lighter Section 301 tariff than several competing countries, the absence of tariff-rate quota exemptions, granted to rivals such as Bangladesh, Cambodia, Indonesia and Malaysia, could blunt that advantage and weaken India's competitiveness in the US market, according to an Emkay Research report.While India has been placed under a 10% Section 301 tariff, lower than the 12.5% rate applicable to countries including China, Vietnam, Brazil and Thailand, the report said that exporters from Bangladesh, Cambodia, Indonesia and Malaysia have secured TRQ exemptions that Indian exporters have missed out on.The brokerage said these exemptions cover specified quantities of textile and apparel imports manufactured using US-origin cotton and fibre, giving competing countries an advantage despite facing higher headline tariffs."Indian textile and apparel exports have not received tariff-rate quota (TRQ) exemptions under the Section 301 tariffs, which were awarded to the likes of Bangladesh, Cambodia, Indonesia, and Malaysia … Hence, while the tariff burden remains at 10%, there will be a relative loss of competitiveness for Indian textile exporters vs key competitors," Emkay said.Better placed overallEven with the setback for textile exporters, the report said India continues to be among the relative beneficiaries of the revised US tariff framework.It estimated India's effective tariff rate in the US market at around 12%, lower than Bangladesh's estimated 25%, China's 22%, and around 14% each for Vietnam and Indonesia.Emkay said around 55% of India's exports to the US will now face the additional 10% Section 301 tariff.

The remaining 45% are either exempt from the levy, including products such as generic pharmaceuticals and smartphones, or are already subject to separate Section 232 tariffs covering sectors such as steel, aluminium and auto parts.Exports rebound after earlier tariff reliefThe report also highlighted an improvement in India's export performance following the scrapping of the earlier IEEPA tariffs."India's exports to the US saw a marked improvement after the IEEPA tariffs were ruled unlawful...

India's monthly exports to the US have averaged USD 8.4bn in the four months since, vs USD 6.5bn in the prior six months," the report said.According to Emkay, the latest Section 301 tariffs are unlikely to significantly alter India's export trajectory in the near future, with the country's relatively lower tariff rate continuing to provide a modest advantage over some rival exporters.However, the brokerage cautioned that fresh Section 301 investigations by the US into excess manufacturing capacity could expose India to additional tariffs."In this context, ongoing negotiations on the India-US bilateral trade deal will be crucial to ensure a lower tariff rate and preferential access for Indian exports in the US market," the report said.Get the latest Business News and Live updates.

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