Reciprocal Tariff Could Be Favorable For India’s Textile Sector — Read Systematix' Analysis

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Systematix Report

On April 02, 2025, US President, Donald Trump, announced reciprocal tariffs, aiming to equalize the tariff rates that US faces from its trading partners. Under this policy, Indian exports to the US now face a tariff of 27%. Although steep, it is still lower than that imposed on key competitors in the textiles and apparel sector, such as Vietnam (46%), Cambodia (49%), China (34%+20% previously announced), Bangladesh (37%), and Pakistan (29%).

We expect the tariff hike to disrupt global supply chains, raise costs and prompt companies to diversify sourcing. While many Asian exporters face challenges, this is a unique opportunity for India to strengthen its position in the global trade. The differential gives India a competitive edge, positioning it as an attractive sourcing destination for US apparel brands like GAP and Walmart, which currently rely on higher-tariff countries.

For example, shifting production from Bangladesh (37% tariff) to India (27%) could yield significant cost savings for the US-based companies.

We believe India could sustain and enhance its market positioning in world trade by focusing on-

1. negotiating tariff reductions through bilateral trade agreements,

2. exploring alternative markets to reduce over-reliance on the US,

3. strategic policy shifts such as zero-duty cotton imports, etc.

On the flip side, higher tariffs could potentially dampen US consumer demand as a huge portion of the tariff costs may get passed on to the end consumer, resulting in apparel prices turning costlier. US companies may also ask Indian suppliers to partly absorb the higher costs, which would squeeze their margins, pushing them to focus on cost-cutting measures.

Additionally, countries such as Turkey, Morocco, and Latin America, which have been spared from high tariffs, could emerge winners and attract shifts in apparel manufacturing.

Despite near term uncertainties, we are optimistic that

1. strong demand visibility, supported by normalizing channel inventories at the global retailer level, comparatively lower tariffs, rising labor costs in Vietnam, ongoing political instability in Bangladesh,

2. India’s strong production base, and

3. government support would cumulatively drive long-term growth in India’s textile industry.

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