Indias Export Growth Slumps as Trump Tariffs Disrupt Apparel Industry

The Trump administration’s recent imposition of a 50% tariff on Indian imports has triggered a sharp slowdown in the country’s export growth, particularly in the textile and apparel sector. The move has caused panic among small and midsize manufacturers, many of whom have seen orders slashed and production halted. With exports expected to decline by as much as 9% in the fiscal year ending March 2026, the sector—crucial for India’s economic strategy and employment—now faces a significant structural challenge.

Introduction
Exports form a vital pillar of India’s economic growth, supporting millions of jobs and underpinning efforts to boost domestic manufacturing. The textile and apparel industry, a major export earner, has long been a focal point of Prime Minister Narendra Modi’s “Make in India” initiative. However, the imposition of steep U.S. tariffs has thrown these plans into disarray. The data highlights the vulnerability of export-dependent sectors to sudden trade policy shifts and underscores the need for India to diversify its export markets and product lines.

Data Overview and Context
The U.S. is a key market for Indian apparel, with about half of the output from factories like those in Tiruppur, India’s knitwear capital, destined for American consumers. The Trump administration’s 50% tariff, which effectively doubles the tax on Indian imports, has caused a sharp drop in demand. According to industry estimates, the duties could reduce U.S.-bound exports by nearly 52% over the medium term. Moody’s has already predicted that apparel exports could shrink by 9% in the next fiscal year. The impact is compounded by a record high of $2.8 trillion in outstanding bank credit for the sector, according to the Reserve Bank of India, leaving many manufacturers highly exposed.

Analysis of Underlying Drivers and Implications
The immediate trigger for the disruption was the additional tariff imposed in August 2025 on Indian imports due to the country’s purchases of Russian crude oil. However, the broader context is one of growing U.S.-India trade tensions, which have been exacerbated by Trump’s broader tariff agenda. The U.S. has also imposed similar tariffs on other major trading partners, but the rate on India remains among the highest in Asia. The textile sector, which relies heavily on low-cost labor and quick turnaround times, is particularly vulnerable to such shocks. Unlike more diversified industries, textile manufacturers have limited scope to pass on costs to consumers or absorb losses through operational efficiencies.

The ripple effects of the tariff are already being felt. Small factories in Tiruppur, which produce basic garments like T-shirts and underwear, have been hit hardest. These products are easily substitutable, allowing buyers to shift production to lower-cost alternatives in countries like Vietnam and Bangladesh. Some manufacturers have already closed shop, while others are seeking alternatives in the UK and other regions. However, the UK market, while growing, is not yet a viable replacement for the scale of U.S. demand. The long-term implications for India’s export strategy could be profound, potentially delaying or derailing efforts to increase its global market share.

Market Reactions and Investment Implications
The export slowdown has raised concerns about India’s broader economic outlook. The textile sector supports over 45 million jobs, and a prolonged slump could lead to widespread job losses and reduced consumer spending. This, in turn, could dampen domestic demand, which has been a key driver of India’s economic growth in recent years. Investors have responded cautiously, with shares of textile and apparel companies falling as concerns over order cancellations and payment delays mount.

Fixed-income markets have also reacted, with yields on government bonds remaining elevated as investors price in higher risks of fiscal stress. The Reserve Bank of India has maintained a cautious stance, but the export slump could force it to consider accommodative policies to offset the drag on growth. For equity investors, the sector presents a mix of risks and opportunities. While some firms are likely to consolidate or exit the market, those with diversified product lines and access to alternative markets may emerge stronger.

Conclusion & Final Thoughts
The Trump administration’s tariffs have exposed the fragility of India’s export-driven growth model, particularly in sectors like textiles that are highly sensitive to trade policy changes. While the immediate impact is concentrated in the apparel industry, the broader implications extend to India’s economic strategy, employment, and long-term competitiveness. Policymakers will need to act swiftly to support affected manufacturers, while also accelerating efforts to diversify export markets and promote value-added products. Investors, meanwhile, should remain cautious as the sector navigates a period of uncertainty, with a focus on companies that can adapt to shifting trade dynamics. Looking ahead, the next round of trade talks between the U.S. and India, along with the release of key economic indicators like export data and industrial output, will be critical to assessing the path forward.