India’s textile exporters are undergoing one of their most significant market realignments in decades, shifting focus toward Europe as punitive U.S. tariffs disrupt trade flows and erode margins. The decision by Washington to double tariffs—raising them to as high as 50%—on a wide range of Indian imports, including textiles, garments, and jewelry, has forced India’s export sector to rethink its long-standing dependence on the American market.

For an industry that sends nearly a third of its output to the United States, the impact has been swift and profound. Many exporters now find themselves offering steep discounts to retain existing U.S. clients, while others are accelerating efforts to enter or expand in European Union (EU) markets. The situation marks a pivotal moment for India’s $38 billion textile and apparel export industry—once considered a reliable pillar of the country’s manufacturing base—and underscores how shifting trade policies can redraw the contours of global supply chains.

President Donald Trump’s recent tariff escalation, part of a broader push to correct trade imbalances and boost U.S. domestic manufacturing, has caught Indian exporters off guard. With margins already thin and global demand uncertain, producers are being forced to choose between slashing profits to maintain U.S. market share or investing in new markets that offer long-term stability and better terms.

Europe Emerges as the New Frontier for Indian Textiles

Europe has rapidly emerged as the natural alternative for Indian exporters seeking to rebalance risk. The European Union, now India’s largest trading partner in goods, accounted for $137.5 billion in bilateral trade during the fiscal year ending March 2024—an increase of nearly 90% over the past decade. Unlike the United States, the EU has maintained a relatively open trade stance toward India, and ongoing negotiations for a free trade agreement (FTA) could further reduce barriers for textile exporters.

Many exporters view the potential India-EU FTA as a lifeline. A successful agreement could provide tariff-free access for Indian textiles to a vast consumer market that values sustainable and ethically sourced apparel. Industry insiders say that even a modest reduction in import duties could immediately improve competitiveness for Indian products against those from Bangladesh, Vietnam, and Turkey—countries that currently enjoy preferential trade treatment under various European trade schemes.

Exporters are already repositioning themselves to meet the EU’s stricter environmental and ethical standards. The European Green Deal and the upcoming EU Corporate Sustainability Due Diligence Directive (CSDDD) impose new expectations on textile supply chains, including traceability, reduced chemical use, and fair labor practices. In response, several Indian manufacturers are investing heavily in cleaner dyeing technologies, organic cotton sourcing, and wastewater recycling to align with European norms.

Rahul Mehta, chief mentor at the Clothing Manufacturers Association of India, noted that exporters are “upgrading both product quality and production processes to meet these sustainability requirements.” For many, these efforts are not merely about compliance—they represent a chance to reposition Indian textiles as high-value, sustainable products in a global market increasingly driven by ethical consumption.

Pricing Pressures Push Exporters to Offer Discounts and Relocate Production

Despite diversification efforts, U.S. buyers still represent a critical revenue stream for most Indian exporters, accounting for nearly 29% of total textile shipments. But with tariffs inflating costs and reducing profitability, exporters are being forced into tough negotiations. Many are offering discounts of up to 15% to retain major U.S. clients, eating into already slim margins.

Vijay Kumar Agarwal, chairman of Mumbai-based Creative Group, said his company—where nearly 90% of shipments go to the U.S.—has been hit hard by the tariffs. To avoid losing customers, Creative Group has begun lowering prices even as input costs rise. But the financial strain is mounting: the company faces potential layoffs of 6,000 to 7,000 workers if the situation persists. Agarwal said that after six months, relocation to tariff-free zones such as Oman or Bangladesh may become unavoidable.

This sentiment is increasingly common across India’s export hubs in Tiruppur, Surat, and Ludhiana. Smaller firms, which lack the financial buffer of large conglomerates, are particularly vulnerable. Many are exploring partnerships in the Middle East, where special economic zones in Oman and the UAE offer tax benefits and lower operational costs. Others are considering joint ventures in Bangladesh to take advantage of its duty-free access to the U.S. and European markets under existing trade agreements.

The situation has also reignited calls for government intervention. Exporters are urging the Indian government to provide export incentives, accelerate FTA talks with Europe and the UK, and negotiate tariff relief with Washington. Industry groups warn that if no relief measures are introduced soon, India could lose its competitive edge to regional rivals in Southeast Asia—a risk that could reshape the textile export hierarchy for years to come.

Shifting Global Supply Chains and the Rebalancing of Power

The disruption in U.S.-India trade comes at a time when global supply chains are already in flux. Western importers, seeking resilience after the pandemic, have diversified sourcing away from China, turning to India, Vietnam, and Bangladesh. Now, with the U.S. tariffs, India risks losing part of that advantage just as it was beginning to gain traction as a global alternative to Chinese manufacturing.

However, this challenge also presents a moment of strategic opportunity. Europe’s growing emphasis on “friend-shoring”—the idea of sourcing goods from politically aligned and stable democracies—positions India favorably. The EU’s appetite for long-term supply partnerships, combined with India’s skilled workforce and vast manufacturing base, could enable Indian exporters to transition from a volume-based model to one built on quality, sustainability, and resilience.

Several large conglomerates, including Reliance Industries and Aditya Birla Group, are reportedly exploring joint initiatives with European retailers to strengthen supply integration. Simultaneously, regional governments within India—particularly in Tamil Nadu, Gujarat, and Andhra Pradesh—are introducing textile park schemes to attract investment in high-tech weaving and dyeing facilities. The shift towards automation, digitized production, and traceability is expected to increase India’s competitiveness with European buyers who demand verifiable sustainability credentials.

In parallel, the rupee’s relative stability against the dollar and euro has helped cushion the blow from the tariff hikes. Exporters are capitalizing on favorable currency dynamics to make pricing adjustments more manageable in both U.S. and EU markets. Yet, foreign exchange advantages alone are unlikely to offset structural challenges without policy support and market diversification.

Europe’s Role in India’s Next Textile Growth Phase

The transformation underway suggests that Europe could become the anchor market for India’s next phase of textile expansion. Unlike the U.S., where tariffs have become a policy weapon, Europe’s trade strategy emphasizes cooperation and standardization. The EU’s sustainability-driven consumer base also aligns with India’s shift toward eco-friendly textiles—a segment that commands higher margins and long-term customer loyalty.

As trade talks between India and the EU advance toward a potential year-end agreement, expectations are high within the textile community. A comprehensive deal covering tariffs, labor standards, and digital trade could unlock billions in export potential. Indian officials have hinted that negotiations are entering a “decisive phase,” with both sides eager to secure a win that strengthens economic ties amid an increasingly polarized global trading environment.

For Indian textile exporters, success in Europe could redefine the industry’s global positioning. The ability to meet advanced compliance norms, build sustainable partnerships, and integrate AI-driven supply chain management could transform India into a preferred sourcing hub for premium apparel and technical textiles.

In the immediate term, however, the road ahead remains difficult. The U.S. tariffs have exposed deep vulnerabilities in India’s export ecosystem—its overreliance on a single market, its cost pressures, and its need for policy alignment with global trends. Yet the industry’s rapid pivot to Europe, coupled with investments in modernization and sustainability, suggests that India’s textile story is far from over.

The trade realignment now underway could ultimately prove transformative, positioning Indian textiles not merely as a low-cost export commodity, but as a value-driven global brand built on quality, innovation, and resilience.

(Adapted from MoneyControl.com)

Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy