MSMEs in textiles, diamonds, chemicals to be most hit by U.S. tariffs: CRISIL Intelligence

“The imposition of higher tariffs by the U.S. will significantly impact the Micro, Small and Medium Enterprise (MSME) sector, which accounts for around 45% of India’s exports, while MSMEs in textiles, diamonds and chemicals are likely to be the most hit,” a report by CRISIL Intelligence said.

“The U.S. levies ad valorem duty of 25% on Indian goods. However, it has imposed an additional 25% tariff which will be effective from August 27 this year. This brings the total tariffs to 50%, which will have a meaningful impact on several sectors in India,” the report said.

“Textiles, gems and jewellery, which account for 25% of India’s exports to the U.S., are likely to be most affected. The MSMEs have more than 70% share in these sectors and will be hit hard,” the report said. Another sector which is likely to face the heat is chemicals, where MSMEs have a 40% share.

“The gems and jewellery sector at Surat in Gujarat, which dominates diamond exports, will feel the tariff shock,” the report said. “Diamonds account for more than 50% of the country’s gems and jewellery exports, and the U.S. is a major consumer,” according to the report.

In chemicals too, India faces competition from Japan and South Korea which are subject to lower tariffs. In steel, the U.S. tariffs are expected to have a negligible impact on the MSMEs as the units are mostly engaged in re-rolling and long products. The U.S. primarily imports flat products from India.

In the textiles sector, the ready-made garments are expected to lose ground in the U.S. compared to peers including Bangladesh and Vietnam which face lower tariffs.