Tariff shock and the immediate fallout
A sudden 50% tariff by the Trump administration on Indian goods has slammed the brakes on two of Indias most traditional export engines: handmade carpets and leather footwear. Within days, buyers in the United States froze or renegotiated orders. Production schedules were scrapped. Credit lines tightened. The blow is sharpest in Bhadohi and Mirzapur, the countrys carpet belt, and in Agra, a leather-shoe powerhouse. In Kashmir, hand-knotted carpet makers say the winter weaving cycle is now out of sync with the export calendar.
Bhadohi often called the Carpet City is the epicenter. Exporters there say the US typically takes the largest slice of their shipments, and for some medium firms, the share crosses half of annual sales. Local trade bodies estimate the cluster supports hundreds of thousands of livelihoods across weaving households, dyeing units, washing pits, trimming lines, and finishing workshops. With the tariff, some buyers have asked for deep discounts to keep orders alive; others have paused new bookings entirely.
Agras footwear exporters report the same pattern. The city ships hundreds of millions of dollars worth of leather shoes and boots each year, much of it to American retailers who plan assortments seasons in advance. Now, landed costs spike the moment the goods hit a US port. Importers are passing on those costs or slashing volumes. Factory owners in Agra say theyre squeezing production to a single shift and trimming overtime to conserve cash.
In Kashmir, the anxiety is about survival of a centuries-old craft. Hand-knotted carpets slow to make and high in value rely on stable demand from affluent buyers in the US and Europe. Traders in Srinagar worry that the US tariff will push premium buyers toward Turkish, Afghan, or machine-made alternatives that are protected by different duty regimes or come with faster delivery times. For a sector that is among the Valleys biggest private employers after agriculture, the risk is stark: if orders dont move, weavers will down tools.
Industry leaders describe the moment as a shock. Exporters say their math no longer works. A mid-range tufted rug that leaves an Indian port at $100 can end up at $150 or more for the US importer once you add the new tariff, ocean freight, insurance, and US-side handling. Retailers either raise shelf prices and risk lower sales, or they squeeze suppliers to hold price which wipes out margins in India. In footwear, where markups and returns policies already weigh on exporters, the extra duty pushes many orders under water.
The ripple effects run through the supply chain. Yarn spinners in Bikaner and Panipat, dye houses in Uttar Pradesh, carton makers, even transporters are feeling the slowdown. With inventories piling up at finishing units, working capital is locked. Banks, already cautious after past export cycles, are asking for more collateral or faster interest servicing. Several exporters say receivable cycles that used to be 6090 days are stretching beyond 120 as buyers delay payments.
Puran Dawar, a prominent leather footwear exporter, warns that the immediate casualty is employment. When export runs stop, factories switch to shorter shifts and subcontracting dries up. That hits daily-wage workers first. Trade associations say they are fielding calls from member firms on furloughs and whether to close lines temporarily until pricing stabilizes or new markets open up.
The timing makes it worse. Logistics remain volatile after months of disruptions in the Red Sea and diversions around the Cape of Good Hope for some routes. Freight is still pricier and less predictable than it was pre-2020. Add a 50% duty, and a shipment that barely cleared a buyers price band last quarter is suddenly unviable.
This is also about lost momentum. Over the last decade, India steadily built a reputation for design-forward rugs and competitively priced leather footwear. It clawed back share from rivals by pushing compliance, eco-friendly dyeing, and traceability. The tariff shock threatens that progress. American customers, the biggest spenders in both categories, are now hunting for substitutes in Mexico, Turkey, Vietnam, and even domestic US suppliers despite higher labor costs.
Theres a structural angle too. Indias duty-free access to the US under the Generalized System of Preferences (GSP) ended years ago, which had already raised costs on several lines. Exporters managed by improving productivity and moving up the value chain. A flat 50% tariff is different. Its broad, blunt, and instant. It compresses the room to adapt.
None of this is abstract for families in the clusters. In Bhadohi, weaving often happens in homes, with women and older artisans contributing piece-rate work between household chores and farm seasons. That income keeps kids in school and smooths the lean months. When orders slow, there isnt a quick replacement. Local domestic demand can absorb some stock, but not at export-grade quantities or prices.
What government can do now and whats next
Exporters want speed over grand plans. Theyre asking for immediate cash-flow relief so they can hold inventory, pay wages, and keep supply chains intact while negotiating new markets. Heres what industry bodies say would help in the short run:
- Faster GST refunds and duty drawback: Clear pending refunds within days, not weeks, and temporarily enhance drawback/RODTEP rates for carpets and footwear to offset part of the tariff shock.
- Cheaper working capital: A 35 percentage point interest subvention on export credit for the next 69 months to keep factories liquid.
- ECGC support: Lower insurance premia and higher coverage for shipments to non-US markets as firms diversify quickly.
- Wage support for clusters: Partial wage reimbursement for registered workers to prevent layoffs in BhadohiMirzapur, Agra, and Srinagar units.
- Power and utility relief: Temporary rebates on electricity duties for MSME dyeing and finishing units, which are energy intensive.
- Compliance flexibility: Extensions on export obligations under EPCG and Advance Authorisation so firms arent penalized for missed targets caused by the tariff.
- Freight equalisation: A time-bound freight support scheme for shipments to Europe, the Middle East, Japan, and Australia while ocean rates remain elevated.
States can pitch in, too. Uttar Pradesh could fast-track its pending capital subsidy disbursements for carpet units, and provide plug-and-play sheds for common finishing facilities. Jammu & Kashmir can expand artisan credit cards and raw-material banks so weavers dont stop midway through a carpet because yarn money ran out. In Agra, a dedicated footwear testing and compliance lab with faster turnaround would help exporters shift volumes to markets with stricter standards.
Diversification is the medium-term safety valve. The UAE is already a bright spot under the CEPA trade pact; Indian rugs sell well in Dubai and re-export to the wider Gulf. Australia, under the ECTA, has cut duties on several lines; footwear and floor coverings can push harder there with tailored designs. Japan and South Korea, where India has older trade agreements, remain under-penetrated but premium-heavy. Europe is tough on sustainability rules, but buyers there value artisanal stories and traceability an edge for handmade carpets if certifications are in place.
That means upgrading product and process. For carpets: develop machine-tufted and flatweave collections with shorter lead times alongside hand-knotted showpieces; invest in easy-care, stain-resistant fibers that big-box US and EU retailers prefer; and scale eco-friendly dyeing with verifiable water and chemical management records. For footwear: push lighter, athleisure-influenced silhouettes, certified sustainable leather, and QR-linked traceability that retailers increasingly require.
Digital wholesale can cushion the blow. Exporters who relied on annual US trade shows need to build always-on pipelines: B2B marketplaces, virtual showrooms, and tight sampling cycles with 3D renders. None of this replaces the US in the near term, but it can win smaller, more frequent orders in new geographies while price negotiations continue with American partners.
Competitors wont stand still. Turkey has scale in machine-made rugs and can ship to Europe quickly. Vietnam and Indonesia have made big strides in footwear manufacturing with strong ties to US brands. Pakistan and Afghanistan compete in hand-knotted designs, though logistics and compliance vary. Mexicos proximity and USMCA preference makes it attractive to American buyers looking for shorter supply chains. India will have to lean on its strengths: design, craft depth, and a broad raw-material base and shore up weak spots in compliance and speed.
What if the tariff lasts? Exporters are war-gaming three scenarios:
- 36 months: Bridge with credit support and rebates; keep teams intact; hold key US accounts with partial discounts and delayed deliveries.
- 612 months: Shift 2030% of volumes to Gulf, Europe, and Australia; launch new collections for those markets; consolidate smaller units to cut overheads.
- 1224 months or more: Consider joint ventures or assembly in tariff-neutral geographies for specific product lines; deepen domestic retail to absorb a layer of capacity; automate where feasible without displacing core artisanal work.
Theres also a policy opening. Indias negotiators can push for targeted relief or exclusions in Washington, backed by data that shows how small and family-run many of these exporters are. Even a limited, product-line carve-out would ease pressure. At home, a focused cluster package would cost far less than a broad bailout and deliver immediate stability. The message from the ground is simple: keep the loom running, keep the line moving.
For workers and artisans, stability beats everything. A predictable order book, paid on time, matters more than a perfect price. Trade disputes come and go; skills take generations to build. The Indian carpet industry has weathered booms and busts, lost GSP, currency swings, and shipping chaos. It can get through this, too if cash keeps flowing, buyers stay engaged, and policy moves fast enough to buy time for a pivot.
