Indian exporters say 50% US tariff 'impossible' to cope with
American clients ask for discounts that are seen as unsustainable
BENGALURU -- Sukumar Subramaniam, managing director of textile products manufacturer Sarathy Exports in the southern Indian city of Karur, is bracing himself for some tough negotiations.
In the wake of an announcement that a 50% U.S. import tariff would come into effect Wednesday, American retailer Dollar General asked him to slash prices by 16%, and other customers in the U.S are expected to follow soon. But Subramaniam says it is "impossible" to offer cuts of that magnitude, even if the chorus grows louder.
"The margins simply don't work with those discounts," Subramaniam told Nikkei Asia. "The best I can do is perhaps around 3%."
Subramaniam is among the thousands of local manufacturers trying to ride out the turbulence unleashed by Washington's "reciprocal" tariffs on India, which are among the steepest in the world. Indian exports are already subject to a 25% levy, while the 50% rate is being imposed as a penalty for New Delhi's prolific purchases of Russian oil, which U.S. President Donald Trump has alleged is "fueling a war machine."
The tariffs have made Indian imports more expensive, nudging American buyers to seek discounts and putting Indian suppliers in a bind. Price cuts will erode profits, but resisting the new terms could shut them out of the world's largest economy.
Subramaniam, who generates roughly one-fourth of his sales from the U.S., said orders will "drastically reduce" if the 50% tariffs stay, as potential customers of his table and kitchen linen, tote bags and home furnishings can buy them from Vietnam and China for much less. Vietnamese exports to the U.S. are subject to 20% tariffs and Chinese goods 30%, although the latter are currently set to face a rate above 50%, starting Nov. 10.
"With a 25% tariff, cutting margins and creating efficiencies could potentially still keep [Indian] producers competitive with others in Asia, where baseline tariffs are around 20%," said Alexandra Hermann, lead economist at research and advisory company Oxford Economics. "But with a 50% tariff, this seems almost impossible."
Washington has for now exempted petroleum products, pharmaceuticals and smartphones from the reciprocal tariffs. But remaining industries, which accounted for 72% of India's $86.5 billion of exports in the fiscal year that ran through March, could see orders slump by up to 90%, estimates the Global Trade Research Initiative (GTRI), a New Delhi-based think tank.
"The tariffs represent an existential threat to labor-intensive exports," such as apparel, textiles, seafood and jewelry, "risking a rapid loss of market share built over two decades," said GTRI founder Ajay Srivastava. "This will have devastating consequences for jobs."
With sales in the U.S. likely to plunge, Indian manufacturers are looking elsewhere to shore up revenue. Sarathy's Subramaniam, for instance, plans to ramp up sales in Europe, South America and Africa. But experts said such expansions are fraught with challenges.
"Most countries are grappling with 15% to 20% tariffs, and the resulting higher prices in the U.S. are expected to dampen American demand," Srivastava said. "This means that exporters worldwide will be competing aggressively to offload surplus goods in alternative markets, making new business development intensely challenging and cutthroat."
While analysts are hoping Washington will eventually roll back the additional 25% tariffs once it finalizes a trade deal with India, those talks have lost momentum. The standoff between the two countries has instead escalated, with Indian Prime Minister Narendra Modi recently saying that India would not compromise over the welfare of its farmers, even if he has to "personally pay a heavy price."
India's refusal to open its agriculture and dairy sectors to U.S. imports have emerged as a sticking point in bilateral trade negotiations. But the impasse threatens India's economic growth, with analysts at financial services firm Nomura estimating a 0.2 percentage point hit to the 6.2% economic expansion it had forecast for the current fiscal year.
With the trade talks stuttering, some manufacturers like Kama Jewelry in the financial capital of Mumbai are evaluating manufacturing in the U.S., despite the high cost of operating in the country.
Managing Director Colin Shah said the U.S. is a "significant" market generating $30 million in annual sales, roughly half of the company's total exports.
"For some manufacturers, America is a significant portion of their business, and it is not something you can replace easily," Shah said. "Considering tariffs are here to stay, most of us have to start some kind of manufacturing there. ... It is significantly more expensive than India, but there is no choice."