By Dr Samar Verma*
The four-day India- United States trade talks that concluded on March 28, 2025, did not meet the industry optimism of specific contours and scope of a Bilateral Trade Agreement, nor did it temper the uncertainty looming due to the impending reciprocal tariffs expected to come into effect on April 2, 2025.
US President’s White House briefing on March 29 reconfirmed the certainty of the impending reciprocal tariff when Trump yet again highlighted India as one of the countries with the highest tariff, even though the industry may like to cling to the sliver of hope of a possible ‘exemption’ that Trump hinted some countries may receive from the reciprocal tariff.
No clarity could be obtained on the modalities that the US proposes to adopt in computing reciprocal tariff, which remains a cause of anxiety at home. Much has been written and analysed on the methods that the US may adopt in computing the tariff, including issues related to trade deficit, levels of product-classification, duration of such tariff, non-tariff barriers including licencing and quality requirements, etc.
Method of computation notwithstanding, the one thing this move will do is to directly contravene two fundamental principles of the World Trade Organisation – that of non-discrimination and Most Favoured Nation (MFN). Notwithstanding the dysfunctional state that the WTO was already reeling under in recent times, reciprocal tariffs will spell the death knell for all the hard-won multilateralism in international trade negotiations which the WTO symbolised. The US Trade Policy 2025 also questions the credibility of another key feature of the WTO, viz., the Special and Differential Treatment for developing countries.
I have had the privilege of participating in several WTO negotiations in various capacities and have witnessed first-hand the intrinsic value, as well as the moral argument, buttressing the need for special and differential treatment (SDT). More practically, developing countries surrendered many other concessions to the developed countries in return, and SDT remained a key component to bringing the developing countries into the WTO fold for a truly multilateral solution to economic exchanges based on principles of equity and fairness.
Recent studies have reported the impact of US reciprocal tariffs on India’s exports and GDP, with auto, pharma and textiles being widely reported as the sectors most affected, representing also sectors with the highest levels of trade deficit which the US has with India. At this stage, with no information on methodology adopted by the US to arrive at these tariffs, it is hazardous to even guess how sectors would be impacted. However, assuming the tariffs are computed at HS 6-digit levels [the World Customs Organization’s Harmonized System (HS) uses code numbers to define products. Six-digit codes are the most detailed definitions that are used as standard] of products, and for each product, the quantum of tariff is such that there is complete tariff parity between the US and India on an MFN basis; some scenarios could be anticipated (not forecast).
I attempt one such scenario for the textile industry.
Our simple data gathered from the World Integrated Trade Solution (WITS) shows that India exported 4198 products at the HS 6-digit level in 2023, of which 713 were in Textiles and Clothing (T&C). Of these 713, only 36 products at HS 6-digit level exported from India to the US in 2023 constituted about 66% of the total value of textile and clothing exports to the US. The tariff differential at the MFN level between the US and India shows that 34 of these 36 products have a tariff higher than the reciprocal tariff imposed by the US on an MFN basis, ranging from less than 1% to 22% differential. 19 products have a differential exceeding 10%, and they constitute 25% of the total value of T&C exports to the US in 2023. Only 9 products have a tariff differential exceeding 15%, valuing 11% of total T&C exports from India to the US, a basket that will attract the highest tariffs.
In addition, the US will likely also look at the value of their imports; in other words, how big are they in US import basket. At 6-digit levels, which are the products in high priority?
- Using tariff differential as the determining variable: Of the 9 items whose tariff differential exceeds 15%, 3 items are less than $100 million, and only 2 exceed $150 million. The Tariff differential across these 9 items ranges from 16-22%. At 6-digit product levels, these are likely candidates for levy of reciprocal tariff. Mostly, carpets and other textile floor coverings (under HS Chapter 57) and impregnated, coated, covered, or laminated textile fabrics (under Chapter 59) exhibit these high differentials. Nearly all exports of articles of apparel and clothing accessories (both knitted and non-knitted under Chapters 61 and 62) have a tariff differential of 6%-15%. Other made-up textile articles (under Chapter 63) have small tariff differentials, ranging from 1%-5%, and would therefore attract minimal attention (tariff).
- Using the value of exports as a determining variable, products exceeding 3% (up to 7% of US imports) have a very low tariff differential (less than 6% mostly), except two items- cotton dressed and pillows/cushions, which both have a very high tariff differential. Thus, these two products are very likely to be high on the US priority list. Wool carpets are another product category that may attract high-priority attention, with their very high tariff differential and fairly high-value share (about 2%).
It will be a surprise if the US goes down to such levels of detail (6-digit) in deciding tariff levels, especially since many of these products have a low share of US imports. They may instead choose product categories at HS 2-digit levels and levy tariffs equal to simple/trade-weighted average of tariff differentials of all of its sub-categories. What will simple averages look like?
- Of the top 36 products constituting 66% of exports in 2023, Carpets and other textile floor coverings (Chapter 57) have about a 7% share in value but command the highest tariff differentials, ranging upwards of 16-18%. This will attract perhaps the highest levels of reciprocal tariff.
- Knitted or crocheted articles of apparel and clothing accessories (Chapter 61) have a 13% value and 7% tariff differential.
- Articles of apparel and clothing accessories (not knitted or crocheted) – (Chapter 62) have an 18% share in value and 11% tariff differential.
- Worn clothing and worn textile articles and rags (Chapter 63) have an 18% share and 2% tariff differential.
In other words, products in chapters 57 (Carpets and other textile floor coverings) and 62 (Articles of apparel and clothing accessories not knitted or crocheted)are likely to attract high tariffs compared to chapter 61 (Knitted or crocheted articles of apparel and clothing accessories). Chapter 63 (Worn clothing and worn textile articles and rags) will likely attract the lowest tariffs.
An important caveat to this simplistic exercise is that this entire analysis is based on 66% of products exported to the US in 2023 in value terms, and hence the numbers and tariff are best estimates based on the strong assumption that while looking at tariff on T&C, US will not consider any other factor as an influence (geopolitical interests, trade in other sectors, potential deals in oil, gas and defence, impact on US consumers, relative advantages or disadvantage any tariff will confer to competing countries, non-tariff barriers etc). One other variable that the US may likely consider in computing tariff levels could be the size of deficits in each product category, an exercise that is not attempted here.
How these tariffs will impact India is a matter that requires multiple other variables, including the price elasticity of demand in the US market, relative difference with competing countries (notably China, Vietnam, Cambodia) and supply chain flexibilities. For instance, in chapter 62 (Articles of apparel and clothing accessories not knitted or crocheted), the tariff differential between the US on the one hand and China and Vietnam on the other is nearly as much as that with India (10-12%). However, that difference is less than 5% with Cambodia. As a matter of fact, across all product categories, Cambodia will likely attract the least reciprocal tariff. In chapter 57 products – Carpets and other textile floor coverings, however, China will be a huge gainer since its MFN applied reciprocal tariffs are lower than that by the US, and hence almost all of India’s loss will likely be China’s gain, to some extent shared by Cambodia. This, of course, assumes supply-side flexibilities, capability enhancement and investor’s interest since it is not yet clear if these reciprocal tariffs are temporary (intimidating tactic) or long-term arrangements. Besides, a lot will also depend on the tariff response of these countries and what that means for reciprocal tariffs; for instance, will they be revised upwards/downwards on a real-time basis as countries adjust and readjust their tariffs in response to US reciprocal tariff is not known.
Estimates on the impact of Trump’s tariffs on exports and GDP abound. While tariff levies will undoubtedly have an impact, much will also depend on the policy response of the government and strategic initiatives made by the industry. As mostly, it is the MSME that will likely suffer most, with job losses and the need for re-skilling again coming to the fore in a world that is riddled with uncertainty and anxiety. Governments- at national and many state levels – have been supporting the sector in multiple ways, and that will need to be fine-tuned and strengthened in collaboration with industry needs and aspirations.
The global template for international economic exchange and its consequent impact on multilateral institutions is ruptured. Unconventional alliances and new partnerships will redefine the shape and architecture of the New Normal in international economic and geopolitical relations, and that presents an opportunity for India to lead the space at a time when we are well prepared under current leadership to reimagine development for the world as a family.
*The writer is an economist and public policy professional with over two decades of experience in leading global programmes for international development agencies. The author gratefully acknowledges the data support provided by Sudip Kumar Paul, Policy Analyst at CUTS International, Jaipur. Views are personal.
