United States’ President Donald Trump announced a sweeping tariff plan which will realign global trade. Trump dubbed today as “Liberation Day,” for America and unveiled his tariff plan in a White House rose garden ceremony that lasted for nearly 60-minutes. Unite States will impose a baseline tariff of 10% on all imports from countries. Countries that levy more tariffs will be subjected to a reciprocal tariff, which President Trump named as “Discounted Reciprocal Tariff.” The tariff rates are calculated at 50% of the total tariff levied by countries which takes into account non-tariff trade barriers, currency manipulation, value-added tax in addition to import duties.
The chart below provides the tariff rates for imports from leading textile manufacturing countries.
In addition to the above rate, the tariff levied on China to counter illicit fentanyl trade will be 20%, which will be added to the reciprocal rate amounting to a total tariff of 54 percent.
Although the new tariff regime is intended to boost manufacturing in the United States, it is unlikely that commodity textile manufacturing will get a boost as margins in this sector are low and it will take years to rebuild the logistics and infrastructure. However, as I have been advocating, Unite States’ advanced textiles sector that caters to defense, medical and aerospace industry will get a positive jump. Nonwoven industry that caters to automotive products will see growth depending on how the automobile sector performs in the new tariff regime of 25 percent.
As China, Bangladesh, Vietnam, and Sri Lanka are leading competitors to India in apparel exports, the new tariff rate will enhance the competitiveness of Indian apparel exports. In the case of China, which needs imported cotton to balance its needs, the recent levy of 15% on United States’ cotton as a retaliatory measure will increase the cost of production making it relatively uncompetitive for cotton-based textile exports.
Although India was criticized by President Trump for its high tariff regime, President Trump acknowledged the long-lasting friendship with Indian Prime Minister Narendra Modi, highlighting the good will between two countries. India and the United States are in the process of getting a trade agreement deal which would benefit both countries if the negotiations are successful.
The current situation with India’s cotton production predicted to be lower than last year, and the potential for more textile and apparel exports to the United States; there are opportunities for the United States’ cotton sector to export fiber to India. Indian spinning sector has been requesting the government to waiver the 11% custom duty for upland cotton. Indian government must support its farmers’ interest and it is unlikely that the government will remove import duties on cotton. However, if the production is showing a declining trend, efforts must be made to strengthen the supply of cotton. In this regard, the government has launched Cotton Technology Mission to boost yield and productivity. In the export market, Brazil is a tough competitor to the U.S. cotton because of its competitive price. Indian mills are also looking into fiber quality like reduced neps and breakages during processing, where United States’ cotton has some edge.
Textile trade will see realignment with China’s share of exports to the United States declining. The new tariff rate, efforts for a new trade deal between India and the United States and warm relationship between the leaders of two leading democracies should benefit India’s export trade. India has the potential to substantially boost its textile export provided it can enhance its product basket and improve its value-chain.
By: Seshadri Ramkumar, Professor, Texas Tech University, USA
