Trump’s tariff heat scalds garment industry, other sectors in Karnataka

Dealing with rising prices, falling orders, and mounting strain from international rivals, MSMEs within the State need to now grapple with the tariffs imposed by U.S. President Donald Trump, that are more likely to cripple varied sectors, notably the garment trade, finds out Mini Tejaswi. Nevertheless, commerce our bodies bat for brand spanking new markets reminiscent of Vietnam, Indonesia, South Korea

The Donald Trump administration’s latest imposition of steep tariffs, 25% in July and one other 25% in August, got here as an enormous commerce roadblock and demanding menace to Karnataka’s industrial and export ecosystem — from clothes to engineering items — as they’ve the potential to considerably cripple the productiveness and profitability.

Significantly hit shall be a number of merchandise made by the State’s Micro, Small and Medium Enterprises (MSMEs), because the landed prices of their exports shall be hit by 20% to 35% with instant impact, lament commerce our bodies and trade gamers. They’re already going through rising prices, falling orders, and mounting strain from international rivals.

Karnataka is house to shut to 10 lakh MSMEs, using round 60 lakh individuals throughout sectors reminiscent of textiles, engineering items & electronics, auto parts, leather-based and footwear, gems and jewelry, marine/sea merchandise and processed meals, agro merchandise, espresso, silk, spices, chemical substances, house furnishing, handicrafts, {hardware}, toys, to call a couple of, and a lot of these corporations closely rely upon U.S markets.

As per knowledge shared by Visvesvaraya Commerce Promotion Centre (VTPC), the State’s nodal company for selling worldwide commerce, Karnataka’s exports to the ushave nearly doubled within the final 4 years, from $4,625.05 million in 2021-22 to $7,898.02 million in 2024-25 (Supply: DGCIS, Kolkata).

Whereas textiles, attire and readymade clothes, stay the toughest hit in Karnataka, the tariff’s impression is much broader. Gems and jewelry exports (in Bengaluru and Mysuru) are seeing lowered demand within the U.S., whereas leather-based items (round Bengaluru) face substitution from low-cost producers elsewhere. Engineering items and auto parts exporters are grappling with shrinking demand and better element prices. In electronics and precision engineering, tariffs mixed with elevated provide chain bills are additional squeezing margins.

Not too long ago, Jitendra Chopra, president, Aluminium Extrusion Producers Affiliation of India (ALEMAI) expressed concern over Karnataka’s aluminium extrusion trade being hit by international headwinds, together with volatility in uncooked materials costs, excessive vitality prices and primarily the 50% tariff.

Karnataka’s Minister for Small Scale Industries and Public Enterprises Sharanabasappa Darshanapur admitted that U.S. tariffs would impression export-oriented items throughout a number of sectors, together with clothes, vehicle parts, aerospace merchandise, meals, and many others,.

Clothes the toughest hit

Karnataka accounts for practically 20% of India’s garment exports, with Bengaluru, Ballari, and Mandya being the important thing hubs. “Being labour-intensive and price-sensitive, even small tariff hikes render exports uncompetitive. Competing nations reminiscent of Bangladesh and Vietnam are already gaining orders at India’s expense,’‘ noticed Prashant Gokhale, president, Bangalore Chamber of Business and Commerce (BCIC).

He argued that whereas importers and retailers/prospects within the U.S. could initially take in the customs tariff burden of the garment trade, ultimately they’d push again prices on to Indian exporters by renegotiating or demanding reductions. In some circumstances, a part of the tariff could get handed on to American consumers and that may enhance their retail tag costs, he stated.

Garment staff at work at an attire manufacturing unit in Bengaluru.
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ALLEN EGENUSE J

“However in price-sensitive classes (fundamental T-shirts, denims), retailers hesitate to extend costs a lot, so exporters find yourself absorbing extra of the hit,’‘ stated Mr. Gokhale, including {that a} readymade garment that beforehand confronted a median tariff of round 10% now confronts a complete obligation of over 60%. “This means a greater than five-fold rise in landed prices, dramatically eroding the competitiveness of Indian clothes within the U.S. This steep price enhance makes our merchandise nearly not possible to promote at a aggressive worth in the usmarket,’‘ he acknowledged.

Some clothes and attire producers in Bengaluru have even halted manufacturing amid worsening price competitiveness and order cancellations, and cost delays have turn into common, stated Mr. Gokhale. This view was echoed by many trade gamers, who didn’t want to be named when contacted by The Hindu.

“Latest evaluation discovered shopper costs of imported attire and footwear within the U.S. might rise by 30% to 40% within the brief run, indicating vital pass-through to consumers. This stated, price-sensitive contracts and wholesale channels typically power Indian suppliers to soak up a portion of the shock — a mixture that’s deadly for low-margin MSMEs,’‘ stated M.G. Balakrishna, president, the Federation of Karnataka Chambers of Commerce & Business (FKCCI), a commerce physique representing hundreds of MSMEs.

Karnataka exported vogue and attire value over $1 billion to the U.S. in 2024 as towards the nation’s whole exports to the nation at $4.8 billion.

A number of different sectors

Karnataka is a key hub for aerospace parts, auto elements, equipment, and IT {hardware}. Tariffs on particular product traces enhance provide chain and landed prices, hitting MSMEs hardest. East Asian rivals are rising stronger on this phase.

Karnataka produces over 70% of India’s espresso and exports roughly half of that output. The State accounts for over 50% of India’s silk trade and contributes considerably to exports. Cashew kernels, spices, handicrafts are exported extensively, and in addition exported are Channapatna toys, a standard craft export from Ramanagara district, identified for lacquered picket toys. The rising merchandise segments embody semiconductors, aerospace parts, and engineering items are shortly rising in export share.

Garment employee tailors garments at an attire manufacturing unit in Bengaluru.
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ALLEN EGENUSE J

Tariffs will convey not simply monetary, but additionally operational and existential burdens on MSMEs, who largely run on skinny 5% to 10% internet margins. “A tariff shock of even 10% to 25% on the U.S. aspect obliterates that cushion except costs are raised or prices are lower,’‘ stated Mr. Gokhale. Additionally, when tariffs climb to 50% vary, low-margin MSMEs are additionally going through contract attrition as consumers attempt to consolidate to bigger distributors who can finance lengthy cycles and compliance. As labour-intensive items see order flight, possibilities of manufacturing facility closures and job fears are excessive, he defined.

A number of commerce our bodies that characterize small and medium exporters from the State identified that MSMEs are important to employment era and industrial development in hubs reminiscent of Bengaluru, Mysuru, Dharwad, and Hubballi. As export orders shrink, there’s a visual impression on jobs, girls’s workforce participation, and ancillary sectors like logistics, packaging, and freight forwarding.

The Federation of Indian Export Organisations (FIEO) estimated that some 55% of India’s U.S.-bound shipments, together with that of Karnataka, valued round $47 billion to $48 billion at the moment are uncovered to pricing disadvantages of 30% to 35%.

A employee arranges tailor-made shirts on the market at an attire manufacturing unit in Bengaluru.
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ALLEN EGENUSE J

The U.S. tariffs has raised the landed price of Karnataka’s MSME exports by 20% to 35%, relying on the product. “This has considerably lowered their international competitiveness. Patrons within the U.S. are shifting in direction of various sourcing locations reminiscent of Vietnam, Bangladesh, and Mexico, which both get pleasure from preferential entry or face decrease tariff limitations. MSMEs in Karnataka, already working on tight margins, are struggling to maintain orders underneath these circumstances,’‘ Mr. Gokhale noticed.

U.S. consumers, particularly massive retailers, are unwilling to move on greater prices to the tip shopper. Consequently, exporters are going through order cancellations, renegotiated contracts, and delayed funds. Smaller MSMEs, with little bargaining energy, are notably susceptible and unable to safeguard their enterprise relationships, noticed Mr. Balakrishna.

Business insiders stated that lowered advance funds from consumers and slower order cycles have worsened liquidity circumstances. “Rising home enter prices — spanning uncooked supplies, vitality, and logistics — have added to the burden. To maintain operations, many exporters are resorting to short-term borrowings and overdrafts, which will increase their monetary threat publicity and weakens long-term sustainability,’‘ stated Mr. Gokhale.

Throughout board surcharge

B.R. Ganesh Rao, president, Karnataka Small Scale Industries Affiliation (KASSIA), stated the tariff hike acts like an across-the-board surcharge that instantly raises the landed price of Indian merchandise within the U.S. market. For Karnataka’s MSMEs, which usually compete on worth and run skinny margins, steep spike in tariffs means instant drop in competitiveness versus low-cost Asian rivals like Bangladesh, Vietnam and Indonesia. It is going to result in pressing working-capital stress as orders are renegotiated or delayed, and stock threat the place consignments already in transit face surprising obligation will increase. Early commerce estimates present tens of billions of {dollars} of Indian exports to the U.S. are affected, indicating a widespread publicity throughout many MSME worth chains, he stated.

“Legally, the importer pays the tariff, however in follow the burden is shared: U.S. consumers/retailers face greater landed prices and can typically search worth concessions from suppliers or change sources; the place suppliers can’t credibly lower costs, retailers will move a lot of the price to U.S. shoppers by way of greater retail costs,’‘ Mr. Rao defined. Empirical financial work on related tariff shocks reveals shoppers do bear a cloth portion of the rise, however commerce diversion and misplaced volumes are the instant ache for MSMEs, he defined.

Based on Mr. Rao, it comes with much more pains reminiscent of lack of market share to various suppliers and longer time to get well volumes, greater working-capital requirement, as consumers gradual cost phrases or cancel orders. It means strain to maneuver up the worth chain (which requires capex and time), further compliance and administrative prices (re-labelling, new HS classifications, testing to hunt exemptions) and threat of everlasting purchaser substitution (as soon as a purchaser builds provide relationships elsewhere). These additionally amplify employment and liquidity stress in labour-intensive MSME clusters, he opined.

Mr. Darshanapur stated the State authorities will assess the severity of the impression and crucial remedial measures shall be put in place. “Nevertheless, the Union authorities has to intervene to make sure crucial assist to home exports oriented items,” he added.

Time for swift motion

Based on the Bangalore Chamber of Business and Commerce (BCIC), it is a second for swift and strategic motion. The commerce physique stated it was in fixed communication with each the Central and State governments to advocate for reduction measures urgent for inclusion of key calls for reminiscent of particular monetary package deal for tariff-hit sectors and a assessment of present export incentives. Commerce our bodies are additionally exploring avenues for technical help to assist MSMEs streamline their operations and cut back prices, additionally collaborating with monetary establishments to supply simpler entry to credit score for companies affected by the disaster.

KASSIA stated it was advocating for a near-term (30 to 90 days) emergency reduction plan which comprised duty-compensation packages, interest-subvention on export credit score, and focused export stimulus for labour-intensive MSMEs. It was additionally pushing for a medium time period (3 to 18 months), which embody upgrading supply-chain, coaching and aggregator fashions to maneuver MSMEs from commodity-grade items to higher-value niches the place ad-valorem tariffs chunk much less.

“We can even assist and coordinate with authorities requests for WTO consultations and authorized treatments. India has already initiated consultations on the WTO on sure tariff issues and such avenues have to be vigorously pursued,’‘ opined Mr. Rao. KASSIA additionally known as for emergency export credit score and obligation compensation for essentially the most uncovered MSMEs, accelerated market-diversification assist and pressing diplomacy to take away unjustified tariffs.

Commerce our bodies stated they’ve been actively encouraging and helping their members to diversify their export markets. Going away or lowering the dependency on their key export market (America), by focusing extra on strengthening ties with the European Union, the U.Okay., the Center East, and different high-growth economies, is important. In actual fact, the spike in tariff got here as a get up name for MSMEs in Karnataka and it informed them to cease being over-dependent on the U.S. market, stated many stakeholders.

KASSIA stated it might assist exporters re-route to non-U.S. markets (EU, Center East, Africa, Latin America) and ramp up e-commerce B2C channels. It might additionally promote collective motion reminiscent of consortium transport, pooled finance, and shared compliance labs to scale back per-unit price. Mr. Balakrishna additionally urged exporters to scale back dependency on the U.S. by diversifying their export markets, meet EU benchmarks by way of CE certification and sustainability labels, and concentrate on rising economies like Vietnam, Indonesia and South Korea.

Coverage reduction

Nevertheless, all stakeholders say that except supported by coverage reduction, export incentives, and market diversification methods, Karnataka’s MSMEs threat shedding their hard-earned international positioning, threatening each industrial development and the livelihoods depending on this sector. Many commerce our bodies anticipate that the Centre would have interaction proactively and negotiate with the U.S. administration within the days to come back so as to safeguard enterprise, along with supporting the exporter neighborhood by way of coverage intervention, export incentives, and improved logistics and finance entry.