Tariffs Dropped from 50% to 18%. India's Exports Fell Anyway. Here's Why.

A real trade deal cut India's US tariff nearly in half. Textile exports still dropped 29%. The reason is more interesting than the tariff itself.

The tariff rollercoaster, in order

To understand why exports fell even as tariffs dropped, you have to see the actual sequence, because the damage was done during the climb, not the descent. In August 2025, the US imposed a 25% reciprocal tariff on Indian goods, then added a further 25% penalty tied to India's continued oil purchases from Russia — pushing the effective rate on many Indian exports to 50%, among the highest tariff burdens facing any major exporting nation. That held through the rest of 2025. Then, on 2 February 2026, the US and India announced a trade agreement that brought the rate down to 18% — a real, substantial cut, just not a full reversal.

Because a tariff isn't just a price — it's a signal, and buyers reacted to the signal months before the number actually changed back. Ashwin Chandran, chairman of the Confederation of Indian Textile Industry, put it plainly: it was a tough year, and just as things were stabilizing in February, new pressure (the Iran-driven cost spike covered elsewhere on this blog) hit right as the tariff relief was supposed to start paying off.

What actually happens when a buyer "hedges risk"

Rajat Jaipuria, managing director of Rajalaxmi Cotton Mills, gave the clearest on-the-ground account of what this looks like in practice: "A lot of US buyers have moved away from India to hedge their risks due to the high tariffs on India. We are struggling to get them back. We have succeeded in getting back only about 40% of our US buyers." That's the real mechanic that pure tariff-percentage headlines miss — a buyer doesn't wait to see if a tariff might drop; they requalify a new supplier in Vietnam or Bangladesh during the uncertainty, and once that relationship exists, there's real switching cost to moving back, even after the original reason for leaving is gone.

Jaipuria's own estimate for recovery timing is telling: since it takes 90 to 120 days from order to shipment, the real effect of February's tariff cut wouldn't even show up in shipment data until May or June 2026 at the earliest — a multi-month lag between policy change and real economic effect that's easy to miss if you're only watching tariff percentages.

The disadvantage that isn't about the tariff rate at all

Here's a genuinely underreported piece of this story: even at the reduced 18% rate, India faces a structural disadvantage that has nothing to do with the percentage itself. The US set up tariff-rate quotas that let Bangladesh, Cambodia, Indonesia, and Malaysia ship specified textile and apparel volumes into the US completely duty-free, provided they use US-origin cotton or fibre. India was excluded from this arrangement entirely. CITI Chairman Ashwin Chandran warned this differential treatment risks actively diverting sourcing orders toward those competing countries — not because India's tariff is higher, but because a competitor's path to zero tariff exists and India's doesn't.

It matters because it changes buyer incentives structurally, not just marginally. A brand sourcing at scale can shift its raw material sourcing specifically to qualify for that zero-tariff lane through Bangladesh or Vietnam — India can't offer that path at any tariff rate, which is a different, harder kind of disadvantage than just "your rate is a few points higher."

The decade-long backdrop that makes this worse

This isn't a one-year story. India's garment exports were $14.5 billion in 2023-24, barely different from $15 billion a decade earlier in 2013-14 — essentially flat. In that same window, Vietnam's garment exports grew to $33.4 billion and Bangladesh's to $43.8 billion — both multiples of India's, from a similar or smaller starting base. The current tariff disruption isn't creating this gap; it's landing on top of one that already existed, at the worst possible moment for a country trying to close it.

The number that should actually reassure you

Here's the genuinely important context that headlines about "India's textile exports collapsing" tend to leave out: the US market, however important, represents about 29% of India's textile and apparel *exports* — but exports themselves are only a fraction of the whole industry. India's total textile and apparel industry is valued at roughly $179 billion, split between $142 billion domestic and $37 billion in exports. That means US-bound trade specifically accounts for something closer to 6% of the entire Indian textile industry's value. A real, serious problem for exporters exposed to it — CITI's warnings are not overblown — but not an existential threat to Indian textiles as a whole, which remains overwhelmingly a domestic-demand industry.

The sector's scale underlines why this matters even at that percentage: textiles and apparel is India's second-largest employer after agriculture, providing direct work to 4.5 crore (45 million) people, over 80% of whom work in small, informal, or household-based units rather than large factories — meaning tariff shocks land disproportionately on the least-cushioned part of the workforce, even when the aggregate industry impact looks modest.

What the government did about the squeeze, and what's genuinely still missing

One real countermeasure: India temporarily removed the 11% import duty on cotton, valid from 1 June through 30 October 2026, specifically to lower raw material costs for exporters navigating this tariff environment. It's a real, concrete relief measure — but CITI's own commentary is clear that uncertainty over whether the Section 301 tariff structure has any defined end date remains a genuine, unresolved risk for long-term planning, not something exporters can fully price in yet.