US tariff hike puts $19 billion of MSME exports at risk; textiles, diamonds, seafood most exposed

Mumbai, August 20, 2025: India’s micro, small and medium enterprises (MSMEs) are bracing for a sharp blow as the United States doubles import tariffs on a wide range of Indian goods starting August 27. The move raises the total duty to 50%, threatening the competitiveness of sectors where MSMEs dominate both production and export volumes.

According to Crisil Intelligence, textiles, gems and jewellery, seafood and chemicals, which together account for nearly a quarter of India’s exports to the US, are among the worst hit. MSMEs contribute over 70% of output in these industries, and many operate on thin margins with limited ability to absorb cost shocks.

The Tirupur garment cluster, responsible for over 30% of India’s readymade garment exports, faces a steep climb. With 30% of its shipments headed to the US, the new tariff regime pushes the effective duty on Indian garments to 61%, compared to just 31% for competitors in Bangladesh and Vietnam. After two years of sluggish growth, the sector’s modest recovery now hangs in the balance.

Surat’s diamond polishing units, which account for more than 80% of India’s diamond exports, are similarly exposed. Diamonds make up over half of India’s gems and jewellery exports, and the US is the largest buyer, taking in nearly a third. A prolonged downturn could impact thousands of MSMEs clustered around Surat.

Seafood exporters face a tough battle too. With tariffs doubling to 50%, Indian suppliers will struggle to compete with Ecuador, which enjoys a lower 15% duty and proximity to the US market.

In chemicals, MSMEs with a 40% market share are disadvantaged against Japanese and South Korean firms that face lower tariffs and have stronger trade ties with the US.

Auto component MSMEs may see a more limited impact. While the US accounts for just 3.5% of India’s total production, certain segments, especially gearbox and transmission parts, have up to 40% exposure and could feel the pinch.

Crisil Intelligence estimates that about $19 billion worth of exports across textiles, chemicals, seafood and auto components are now at risk. Domestic demand is projected to rise by $10 billion in these industries, offering partial relief. In gems and jewellery, rising gold prices and steady domestic consumption may cushion the revenue impact, even if export volumes decline.

Some sectors remain insulated. Pharmaceuticals, which represent 12% of India’s exports to the US, are exempt from the new tariffs. Steel MSMEs are also largely unaffected, as they produce long products while US imports are concentrated in flat products. The US accounts for just 1% of India’s steel exports.

Still, the timing of the tariff hike is challenging. Exporters are already grappling with slowing global demand and shrinking margins. For small businesses with limited pricing power, the ability to withstand further cost pressures is thin. To navigate the turbulence, diversification will be key.

India’s recently concluded trade agreement with the United Kingdom offers a potential lifeline, especially for MSMEs in textiles, seafood, gems and jewellery, leather and pharmaceuticals. The deal enhances competitiveness against regional rivals and could help offset losses in the US market. Ongoing negotiations with the European Union may further support market diversification.