India’s textile and apparel exporters are recalibrating their strategy as punitive U.S. tariffs, some reaching as high as 50%, bite into demand and margins. Rather than compete at the high end of U.S. markets under tariff pressure, many exporters are now courting European buyers more aggressively, offering discounts and repositioning supply lines to cushion the blow.
Tariff Shock and Vulnerability
In August, the U.S. raised tariffs on Indian imports, doubling duties on a wide range of goods from garments and jewellery to seafood. The measures have placed Indian exporters under severe stress: export orders are shrinking, margins are eroding, and the longstanding dependence on the U.S. market is being called into question.
Historically, the U.S. has been India’s largest market for textiles and apparel, accounting for nearly 29% of total exports in the fiscal year to March 2025. As a result, manufacturers who heavily rely on U.S. orders are experiencing significant challenges. One Mumbai exporter revealed that his company is now prioritising diversification into the European Union, betting that a free trade pact or looser access might unlock fresh demand.
Discounts to Retain U.S. Clients— But How Sustainable?
To hold onto U.S. clients, some exporters have begun offering discounts, absorbing margin losses in the short term. Creative Group, a Mumbai-based exporter whose U.S. shipments represent 89% of its business, is among those deploying this strategy. But such discounting is not without pain. The company warns that continued tariff pressure could threaten 6,000 to 7,000 jobs out of its workforce of 15,000. In the worst case, the firm may consider relocating production to lower-cost jurisdictions such as Oman or Bangladesh.
Discounting, while a stopgap measure, is not a long-term fix. Margins in textiles are already thin, and sustaining deeper cuts may undercut viability over time.
Europe: A Strategic Pivot
The EU has emerged as a logical alternative destination. India and the EU are currently engaged in “decisive phase” trade talks, with the goal of reaching a free trade agreement by the end of the year. For Indian exporters, success in the European market would require meeting more stringent standards around chemicals, labelling, environmental compliance, supply chain transparency, and ethical sourcing.
India already trades heavily with the EU: in the fiscal year to March 2024, two-way goods trade stood at around US $137.5 billion, reflecting nearly 90% growth over the prior decade. That momentum offers India a foundation on which textile exporters hope to build new relationships more insulated from bilateral tensions with the U.S.
Risks, Challenges and Imperatives
While diversification is prudent, the path will not be smooth. The European market is competitive, and Indian exporters will face established players from Bangladesh, Vietnam, and Turkey, among others. Meeting compliance requirements, logistical constraints, lead times, and financing demands will be essential differentiators.
Moreover, discounting to retain U.S. clients is a perilous balancing act: if tariffs persist, losses may accumulate rapidly. Relocating production is another option, but shifting plants, even regionally, entails capital, adjustment costs, labour training, and supply chain realignment.
Policymakers may also need to intervene more actively. Export promotion, soft credit, enhanced infrastructure, diplomacy in trade negotiations, and risk mitigation mechanisms would all help Indian firms weather external shocks. The Indian industry’s capacity to pivot quickly will depend significantly on macro- and institutional support.
In the face of adverse U.S. tariffs, Indian textile exporters are essentially placing a two-pronged bet: short-term discounting to anchor existing clients and long-term repositioning into Europe as a new front. Their achievement will not be quantified in incremental orders but in whether they are capable of instituting process changes, tighter standards, and reduced reliance on one market.
If India succeeds in managing this transition, it could put an end to the upheaval with a diversified export base and a stronger global footing. However, the journey will present constant challenges to margins, managerial skills, and strategic resilience.
