Indian textiles under American tariffs: a labour-intensive sector takes the hit

Few sectors felt the 2025–26 American tariff shock as directly as textiles and apparel. The United States is the single largest market for India's textile and apparel exporters, and from 27 August 2025 to 7 February 2026 Indian exporters faced a combined 50 per cent American tariff: 25 per cent reciprocal duty plus a 25 per cent penalty linked to Russian oil purchases. On 7 February 2026 the penalty duty was removed by executive order, giving partial relief, but exporters still faced a higher reciprocal duty than competitors — 25 per cent against 20 per cent for Bangladesh and Vietnam, according to industry analysis at the time — and were compelled to absorb much of the burden by offering discounts of 15 to 18 per cent to American retailers.

The trade data shows the strain. Ready-made garment exports rose 2.4 per cent to 12 billion dollars in April–December 2025, helped by demand from Japan, Saudi Arabia and Italy, but shipments to the United States fell 3 per cent to 3.6 billion dollars. In April–August 2026, textile exports grew 6.94 per cent while apparel exports fell 9.10 per cent, leaving total textile and apparel exports marginally lower by 0.24 per cent year-on-year. Credit rating agency ICRA had earlier revised its outlook for export-oriented apparel firms to negative for 2025–26, projecting a revenue decline of 6 to 9 per cent and a fall in operating margins from 10 per cent in 2024–25 to about 7.5 per cent.

A second American measure added a different kind of pressure in 2026. From 24 July 2026, the United States imposed Section 301 tariffs linked to forced-labour import prohibitions on covered imports from 60 economies. India was set at 10 per cent after adopting a forced-labour import prohibition, while Vietnam was set at about 12 per cent, according to a September 2026 industry report; four textile-producing competitors — Bangladesh, Cambodia, Indonesia and Malaysia — were included in a tariff-rate quota mechanism tied to their imports of American cotton and textile inputs, from which India was excluded. Industry estimates cited in that reporting suggested compliance costs could reduce exporter margins by 8 to 10 per cent.

The Confederation of Indian Textile Industry warned in September 2026 that further American tariffs under the newly signed Lindsey O. Graham Sanctioning Russia and Iran Act would be very difficult for the micro, small and medium enterprise-dominated sector to absorb. The episode illustrates a structural point: labour-intensive export sectors are the most exposed to tariff wars, because their margins are thin, their buyers can switch suppliers quickly, and their workers — in clusters such as Tirupur, Panipat and Solapur — feel the adjustment first.