Trump's tariff gamble sparks Indian export rush to US, but a 50% duty threat hangs heavy

The frontloading of consignments by Indian exporters to stay ahead of higher duties may have led to exports of goods to the US growing seven times faster than the overall pace, ToI reported.

During April-July, goods exports to the US rose 21% to $33.5 billion, while overall exports grew 3% to $149.2 billion, according to the latest commerce department data. Although a 22% share of shipments going to the US leaves India more exposed to the risk of a 50% additional duty, the strong growth has given some exporters the space to offer discounts if the 25% extra levy announced by Trump takes effect from August 27.

“We have spent the last week talking to buyers and in case of old buyers we are looking at some additional discount to retain the business even if it means that we have to pay out of our pockets for sometime…Although official negotiations with the US (scheduled to start Aug 25) have been postponed, we expect some breakthrough in the forthcoming weeks,” ToI cited Sudhir Sekhri, chairman of the Apparel Export Promotion Council (AEPC).

For the first 25% duty, which has already been imposed, exporters have so far shared the burden and kept their business, with some consignments being rushed through before the deadline. For the next round, contracts are being drawn up with conditions that discounts offered will not apply if the additional 25% duty, or secondary tariffs on India for buying Russian oil, are not implemented.

Most industry players said that business could not survive a 50% tariff. “We operate on a very thin margin of 5-7%, where is the question of offering steep discounts to offset the impact of 25% additional duty? We can sacrifice our profits but can’t sustain the business with losses,” said Rajendra Kumar Jalan, chairman of the Council for Leather Exports. He added that the US-Russia talks had given exporters some hope that the penalties may not be enforced.

RC Ralhan, president of the Federation of Indian Export Organisations (Fieo), has called a meeting of export promotion councils on Monday to prepare a joint petition for government help. “There will be significant job losses if export orders are cancelled, especially in the MSME sector,” he said.

So far, the situation has stayed positive. July’s sectoral export data for all countries showed that shipments to the US may have lifted growth. Gems and jewellery, where goods can be moved quickly by air, posted a 28% rise in July, compared with a fall of 0.7% in April-July. Pharma exports rose 14% in July, compared with 7.4% in the first four months of the financial year. Engineering goods were up 13.8% in July, against 6% in April-July, and plastics grew 4.4% in July, compared with 2.6% for April-July.

“The US market has been expanding and Indian exporters have also focused on it as returns are good,” said Ajay Sahay, director general at Fieo. “Everybody was trying to frontload shipments. Order book was good in April-May, business generally was looking up because of the overall sentiment due to China+1. The sudden brakes will result in deceleration,” added AEPC’s Sekhri.