US Doubles Tariffs on Indian Imports, Threatening Exports of Diamonds, Shrimp, and Textiles

The US has more than doubled tariffs on Indian imports, imposing a 50 per cent duty on goods exported from India, a move that will significantly impact the earnings of companies involved in diamond polishing, shrimp, and home textiles. The additional 25 per cent tariff, imposed on top of the existing 25 per cent duty, will make Indian exports to the US unviable for several sectors, including ready-made garments, chemicals, agrochemicals, capital goods, and solar panel manufacturing. The move comes in response to India's decision to import oil from Russia, which has strained the bilateral trade relationship between the two countries.

Key Takeaways:

• The US imposing a 50 per cent tariff on Indian imports will have a significant impact on the earnings of companies in sectors including diamond polishing, shrimp, home textiles, and carpets.
• The additional 25 per cent tariff will make Indian exports to the US unviable for sectors such as ready-made garments, chemicals, agrochemicals, capital goods, and solar panel manufacturing.
• According to a report by Crisil Ratings, the extent of impact will vary depending on exposure, the ability to pass on incremental costs to customers, and relative tariff disadvantage versus competing nations.
• For diamond polishers, exports to the US account for around 25 per cent of total revenue, and the industry is already facing tepid demand for natural diamonds in the US and growing demand for lab-grown alternatives.
• The US accounts for around 48 per cent of revenue for Indian shrimp exporters, and the combination of applicable reciprocal tariffs, countervailing duty, and anti-dumping duties makes India one of the highest-taxed major shrimp exporters to the US.
• Home textiles and carpets, which are highly dependent on the US market, are likely to suffer steep revenue and profit contractions due to the 25 per cent reciprocal tariff and additional 25 per cent penalty.
• Other sectors such as ready-made garments, agrochemicals, specialty chemicals, and capital goods have moderate exposure to the US and are expected to face challenges, including near-total erosion of their competitive edge in the American market.

Statistics:

• The US accounted for around 20 per cent of India's merchandise exports and approximately 2 per cent of its overall GDP last fiscal.
• The US tariffs carried in effect exceed those applicable to many competing Asian countries except China.
• Export volume for shrimp is expected to decline due to high reliance on US trade and costs rising due to partial absorption of tariffs.
• The tariff will also put further pressure on the already modest operating margin of the diamond polishing sector due to reduced fixed-cost coverage and the onus to bear the higher tariff cost.
• Home textiles and carpets have a high dependence on the US market, with exports accounting for approximately 60 per cent and 50 per cent of their exports respectively.
• The discretionary nature of these products limits the ability to pass higher costs onto consumers.
• Crisil expects the 25 per cent reciprocal tariff to be manageable for sectors such as ready-made garments, agrochemicals, specialty chemicals, and capital goods but the additional 25 per cent penalty will cause pronounced setbacks.
• The US tariffs carry the risk of triggering a broader slowdown in US demand, especially for discretionary goods, driven by inflation concerns.

Sources:

• US President Donald Trump's decision to impose a 25 per cent tariff on import of goods from India as reported by IE Online Media Services Pvt. Ltd.
• Crisil Ratings report on the impact of US tariffs on Indian exports, referenced in the article.