Exporters weigh options to deal with new US levy

The Star

11 hours ago

MUMBAI: Indian exporters who built their businesses on Americans' demand for affordable goods are redrawing their strategies and weighing alternatives to reduce the pain from US President Donald Trump's shock 50% levy on imports.
Trump's decision to double tariffs in the space of a week will make India-made apparels to generic drugs prohibitively expensive and can heavily disrupt exports, if not bring them to a grinding halt for many smaller businesses.
'This is worse than Covid for us,' said Lalit Thukral, founder of apparel exporter Twenty Second Miles, who fears the industry will have to sell his goods at a loss and comparing the tariff-led disruption to the coronavirus pandemic.
'At least, there seemed to be an end to it. This tariff situation is just getting worse.'
While escalating tariffs pose an existential threat to small enterprises like Twenty Second Miles, the larger ones are considering coping tactics including relocating production lines to countries with a lower tariff barrier, tapping buyers in other geographies and exploring acquisitions in the United States.
Gokaldas Exports Ltd, one of India's largest apparel exporters that earns about 70% of its revenue from the United States, plans to ramp up production in its factories in Kenya and Ethiopia which face just a 10% US levy.
'Africa is looking like a good source at the moment,' Gokaldas' managing director Sivaramakrishnan Ganapathi said in an interview. 'We are seeing a huge amount of inquiries for production from that region from American customers.'
The mitigating strategies will be a gut punch for Prime Minister Narendra Modi's flagship 'Make in India' initiative and puncture any prospects to position India as an alternative manufacturing hotspot to China.
Economists forecast that Trump tariffs could clip India's gross domestic product (GDP) by as much as 1%.
Trump has peppered his tariff onslaught with jibes about how the South Asian nation's trade barriers were 'obnoxious' and its economy 'dead' – remarks that have drawn counter from India's central bank.
But businesses are hoping for more than just retorts. Businesses thought 'there would be more predictability,' according to Rohit Kumar, founding partner at public policy consultancy The Quantum Hub.
'In the short term, this threatens our China+1 strategy that India was positioning itself to benefit from. In the longer term, even this rerouting may not work for longer as policies could change,' Kumar said, referring to companies trying to recast supply chains.
'The additional 25% oil penalty tariff would take the hit to US-bound exports to 60%, dragging GDP by 0.9%.
'This drop would be concentrated on the key items impacted by these tariffs such as gems and jewellery, textiles, footwear, carpets and agricultural goods – all labour-intensive industries,' said Chetna Kumar and Adam Farrar of Bloomberg Economics.
The revised US levy announced as a penalty for India's purchases of Russian oil are set to take effect within 21 days, providing time for hectic parlays between New Delhi and Washington DC.
In the meantime, companies are working on hedging strategies. Tata Group's Titan Ltd, which sells jewellery, is considering shifting some manufacturing to the Middle East which has lower duties on shipments into the United States, Reuters reported last week.
Kalyan Jewellers India Ltd may consider expanding its manufacturing operations in Dubai to navigate US tariffs, executive director Ramesh Kalyanaraman said in an interview with Bloomberg TV.
While Indian drugmakers are awaiting clarity on sectoral tariffs imposed by the United States, many of them have already begun scenario planning given Trump's dire threats.
'We'll be putting a initially small tariff on pharmaceuticals, but in one year – one and a half years, maximum – it's going to go to 150% and then it's going to go to 250% because we want pharmaceuticals made in our country,' Trump had said in an interview on CNBC.
Alembic Pharmaceuticals Ltd, which earns about 30% of its revenue from the United States, sees acquisitions there as a way of boosting manufacturing in the region, its joint managing director Pranav Amin told Bloomberg News.
Aurobindo Pharma Ltd, which counts on the United States for nearly 50% of its sales, announced the acquisition of Indiana-based Lannett Co on July 30 in a deal that will help expand its US manufacturing footprint.
About US$3bil worth of auto components exports will be affected, according to data from the Automotive Component Manufacturers Association. A 50% tariff also makes India the worse off among its peers such as Vietnam, Indonesia and China.
Firms elsewhere are also actively trying to lure non-American customers to diversify their customer base and market presence.
Welspun Living Ltd, which sells home fabrics in the United States, told analysts last week that it is looking at the United Kingdom, European Union, Middle East, Australia, New Zealand and Japan to reduce reliance on the American market.
SNQS International, based in the textile hub of Tiruppur in southern India, gets about 20% of its business from the United States, but is now looking to double down on European nations, according to its founder V Elangovan.
Larger textile manufacturers are also grabbing smaller, low-value orders to keep their factories running and avoid shutdowns, Thukral of Twenty Second Miles said.
This risks crowding out the smaller firms. — Bloomberg