Exporters to take price cuts but hopeful on US-India trade agreement

Retailers, banks and buyers are sharing the burden as exporters frontload shipments, cut prices short term and weigh overseas bases if tariffs persist

In the last few days, I have talked with many exporters regarding the impact of high US tariffs on Indian goods. Here are some responses.

 

“We hope the two governments will sort out the matter in the next 2-3 months, and we will end up with tariffs of about 20 per cent. Till then, we have to keep the shipments going by taking a price cut of about 8-10 per cent. Rupee depreciation has helped. The US buyers are willing to share some burden and pass on some burden to the consumers. Right now, they are well stocked and we have also frontloaded the shipments and so, we have some capacity to hold out for the next 3-4 months.”

 

“Our buyers are large retailers who usually finalise their yearly indents by February-March. This April, imports from China faced 145 per cent tariffs in the US. So, they moved away from China and we also benefited. They are not in a great hurry to disturb the arrangements immediately, except that they want some price cuts that we are willing to give. However, if tariffs for our goods do not come down by this December, we may lose orders for next year. Diversifying export markets is easier said than done. It takes years to develop a buyer. “

 

“Our precision engineering goods involve considerable design and tooling expertise developed over the years. So, it is not easy for the buyers to move elsewhere quickly. Our buyers are mostly original equipment manufacturers and our items constitute only a small part of their overall costs. They are continuing with us for now but they will look for options, if the landed costs of our goods continue to be higher than what they can get for the same quality goods from elsewhere.” 

 

“Whether the US tariffs go down or not, we are looking to establish a manufacturing base outside India, preferably in Dubai or thereabouts. Any higher labour or other costs will be more than offset by cheaper access to inputs (especially steel) and lower tariffs in the US. The free trade agreement has made accessing Indian markets from Dubai easier. The transport costs from say Jebel Ali to Delhi via Mundhra might be lesser than the road transport costs from say Coimbatore to Delhi.”

 

“Our pharmaceutical products attract zero duties in the US for now.  Some of our formulations have high import content of active pharmaceutical ingredients (API) from China. Certain rulings in the US allow determination of origin on the basis of where substantial transformation occurred. Whether the US Customs will bring these rulings to determine the origin of our goods is a question mark. Till recently, their focus was more on border protection and drug smuggling rather than revenues. They don’t have much expertise on the finer points of valuation, classification, rules of origin etc. In any case, the buyers are not much bothered about higher duties on our low-priced generics and the patients in the US need our medicines.”

 

Thus, the exporters I talked to are hopeful that they can manage for 3-4 months with some price cuts because the buyers and bankers are willing to support them, keeping in view their track record but they expect the government to finalise a US-India trade deal by then. They will cut production, if the export orders dry up.

 

email : tncrajagopalan@gmail.com