Not just trade: Trump's 50% tariff poses survival challenge for Indian MSMEs, says AEPC
ET Online
AEPC's Secretary General Mithileshwar Thakur
India's presence in the US garment import market has grown, with its share rising from 4.5% in 2020 to 5.8% in 2024. This positions India as the fourth largest exporters of ready-made garments (RMG) to the US, as per the Apparel Exports Promotion Council . The US also accounts for 33% of India's apparel and garment exports, making it a critical market. However, with Donald Trump slapping a 50% tariff, $4 billion worth of core exports are now at risk, says AEPC 's Secretary General Mithileshwar Thakur. In an interaction with ET Online, Thakur elaborates on the fallout of the recent US tariffs , its impact on small businesses and traders, and the urgent steps the industry is seeking from the government. Edited excerpts:This is a body blow to India's labour-intensive apparel export industry. The additional 25% tariff takes the total duty to 50%, a level no Indian exporter can compete at. Margins in this sector are already razor-thin, and such a steep hike is simply unaffordable.It's not just a trade issue anymore; it's a survival crisis for thousands of MSMEs that depend on US orders. If no immediate relief is offered, we risk widespread job losses, factory closures, and a collapse of export momentum in key apparel clusters. The government must intervene with direct fiscal support before the situation turns into a full-blown employment and economic crisis for the sector.The US announced a 25% reciprocal tariff earlier, followed by an additional 25% penalty, which has significantly disrupted Christmas shipment plans. Buyers are now fully aware of the cost implications and are stepping back. Many are hesitant to place orders, and exporters are already facing delays and order holds, especially for basic apparel products, which account for about 80% of India's apparel exports to the US.So far, many orders are currently on hold. We have urged the government to provide immediate support to mitigate this major setback. Exporters are under immense pressure and may be forced to sell below cost just to keep their factories running.India now faces a tariff disadvantage of around 5-6% compared to most of the competing countries. With the total tariff burden now at 50%, the costing calculations have gone completely haywire. In the apparel export sector, this makes core product exports worth $4 billion to the US highly uncompetitive. Indian apparel exporters and stakeholders in the supply chain are finding it extremely difficult to absorb the increased duty.Around 80% of India's apparel exports to the US consist of basic or core products, while only 20% are value-added items.The higher tariff is expected to have a relatively lesser impact on high value-added exports, but it could completely wipe out the core product segment. That alone is valued at approximately $4 billion. This would have a serious impact on employment and may lead to the closure of many MSME units in key apparel clusters.Buyers are now extremely cautious. The sharp rise in duties has made them re-evaluate their sourcing decisions. We are seeing a marked slowdown in order bookings, with buyers either pausing or shifting toward alternative suppliers in other countries.We have asked the government for immediate intervention to support the industry. First, we are seeking incentives that can neutralise the cost disadvantage we now face compared to other exporting nations. We've also requested the revival of the Interest Equalization Scheme for a five-year period, at an enhanced rate of 5%, applicable to all exporters without any value cap. The Rs 2,250 crore currently allocated to the Export Promotion Mission is simply not enough to meet the sector's expanding needs, so we want that budget increased.Moreover, we're urging easier and more affordable credit access for MSMEs, continuity of key schemes like RoSCTL, a moratorium on loan repayments, and swift disbursal of long-pending dues.And finally, it is essential that India expedites its trade talks with the European Union to open up new markets and offset some of the US-related losses.
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