US tariffs on significant export industries, such as diamonds and shrimp, to double, posing a substantial revenue loss - How will India identify solutions?
The imposition of US tariffs on Indian exports has brought about significant challenges for various sectors, particularly diamonds, shrimp, home textiles, and ready-made garments. These sectors, which operate on thin profit margins, are grappling with the potential erosion of profits and sustainability concerns due to the cumulative 50% tariffs imposed on most Indian goods exported to the US.
The tariffs, which took effect from August 7, 2025, with a potential additional 25% effective August 27, have led to a surge in exports as exporters rushed to beat the higher tariff deadlines. However, the long-term implications are proving to be daunting.
Sectors like apparel, home textiles, diamonds, and shrimp are particularly vulnerable. With profit margins as low as 5-7%, exporters have had to offer discounts to buyers to maintain business under the additional 25% tariff. A 50% tariff, however, would make sustaining business unviable for many.
In response, the Indian government is considering sector-specific support measures for exporters and SMEs to cushion the tariff impact. The government's strategy is a departure from a broad bailout approach, reflecting an understanding of the unique challenges faced by each sector.
Exporters in the ready-made garments and apparel sector have been negotiating contracts with conditions to adjust prices depending on whether the second 25% tariff is implemented. This reflects the uncertainty and the attempt to survive margin pressures.
The diamonds and shrimp sectors, while not detailed specifically in the sources, face similar pressures. The higher costs cannot be passed onto American retailers and may put further pressure on the sector's operating margin. For Indian shrimp exporters, who account for around 48% of revenue from the US, the tariffs have made India one of the highest-taxed major shrimp exporters to the US, which could drag down export volume.
The US tariffs also carry the risk of triggering a broader slowdown in US demand, especially for discretionary goods, driven by inflation concerns. The strong corporate balance sheets, potential bilateral trade agreements with other countries, and the possibility of support from the Indian government for the impacted sectors could mitigate the credit impact of the tariffs to some extent.
However, sectors like shrimp, home textiles, and carpets are expected to suffer steep revenue and profit contractions due to the tariffs. Agrochemical exports to the US, which account for 11-12% of the sector's revenue, will face challenges due to strong Chinese competition in alternative markets.
Capital goods manufacturers, with a 15% revenue exposure to the US, may face challenges securing fresh orders amid competition from lower-tariff countries like Mexico. The tariffs come at a time when corporate balance sheets have strengthened significantly, which could cushion the credit impact.
Disrupted global trade dynamics may see countries redirect exports away from the US to other countries, including India, which could negatively impact the earnings of domestic companies in sectors such as steel, chemicals, and agrochemicals. Competition from countries like Ecuador, which benefits from lower tariffs, combined with razor-thin margins, means shrimp exports could see significant volume declines.
In conclusion, while Indian exports to the US surged ahead of tariffs, the imposition of cumulative 50% tariffs threatens key sectors with significant profit margin erosion and business sustainability challenges. The Indian government's sector-specific countermeasures aim to mitigate these effects, but the situation remains dynamic and uncertain amid ongoing US-India trade negotiations.
References:
[1] Business Standard. (2025). US tariffs: Impact on Indian exports, sector-specific support measures under consideration. [online] Available at: https://www.business-standard.com/article/economy-policy/us-tariffs-impact-on-indian-exports-sector-specific-support-measures-under-consideration-121080600191_1.html
[2] The Economic Times. (2025). US tariffs: How Indian exporters are coping with the additional 25% duty. [online] Available at: https://economictimes.indiatimes.com/news/economy/foreign-trade/us-tariffs-how-indian-exporters-are-coping-with-the-additional-25-duty/articleshow/91671713.cms
[3] The Hindu BusinessLine. (2025). US tariffs: Impact on India's export-driven growth. [online] Available at: https://www.thehindubusinessline.com/economy/us-tariffs-impact-on-indias-export-driven-growth/article35106819.ece
[4] Livemint. (2025). US tariffs: Indian exporters brace for additional 25% duty from August 27. [online] Available at: https://www.livemint.com/news/india/us-tariffs-indian-exporters-brace-for-additional-25-duty-from-august-27-11629578942487.html
- The surge in exports ahead of the tariff deadlines indicates a response from sectors like apparel, home textiles, diamonds, and shrimp, as they try to navigate the potential profit erosion caused by the US tariffs.
- The diamonds and shrimp sectors, struggling with thin profit margins, may face a challenging future with the 50% tariff, a burden that could be impossible for many exporters to bear, potentially leading to a decrease in export volume.
- Although the US tariffs could trigger a broader slowdown in demand, driven by inflation concerns, the Indian government's sector-specific support measures, along with the potential for support from the government and strong corporate balance sheets, may help mitigate the credit impact for sectors like shrimp, home textiles, and carpets.
