US tariff, discount demands threaten Indian exporters' profit margins

The profit margins of Indian companies are in danger of being hit by the 25 per cent tariff on exports to the United States (US) and possible discounts to boot. 

Textile exporters from hubs like Tiruppur have indicated that buyers in the US are making a pitch for high discounts, urging Indian manufacturers to shoulder part of the financial strain of tariffs. 

This is considering the fact that the average margin Indian exporters have for volume products is as low as 5 per cent, while that of fashion products is around 20 per cent. 

Major US brands that source from the Indian market include Walmart, Target, Amazon, Costco, Macy’s, Gap, and Columbia Sportswear.

 

The higher tariff comes at a time when India’s share of apparel import in the US market increased to 8 per cent during January-May, as against 6 per cent in the calendar year of 2024. 

 

“From the reports we are getting, some brands have started asking for discounts of up to 10 per cent, while our average margin comes to around 5 per cent only on volume products, making them unviable,” said Elangovan Viswanathan, president, Buying Agents Association and managing director of SNQS Internationals.

 

“This will be a big issue for companies that are only dependent on the US market, especially in key areas like the kidswear segment,” he added.

 

A major concern for industry is also the lack of clarity on the “penalty”, which is in addition to the tariff. Some players have started lining up plans to be competitive.

 

“Even with the 25 per cent duty, India holds a cost advantage — 10 per cent over Bangladesh/Cambodia, 5 per cent over Sri Lanka, and 20-25 per cent over China. Our strong base in raw materials and intermediates, backed by improving scale, keeps us preferred in global sourcing,” said Prabhu Dhamodharan, convener, Indian Texpreneurs Federation.

 

Industry experts have indicated that a critical factor will be where the China tariff settles because the differential competitive advantage matters in global trade.

 

“Due to absolute tariffs going up, buying will be slow for three months, but a pipeline inventory of the US isn’t so much that it can delay buying too much,” said Sanjay Kumar Jain, managing director of textile producer TT Ltd.

 

“India today does not have the capacity for more than 10 per cent growth, and is in the process of building capacities that would be pulled by the United Kingdom and buyers who have, irrespective of anything, decided to source more from India,” he added.