India US trade deal uncertainty deepens as exporters warn of losing US orders

Uncertainty over a long-awaited bilateral trade agreement between India and the United States has reached a critical juncture in early 2026. Indian exporters, particularly in labour-intensive and manufacturing sectors, are increasingly worried about losing vital orders from U.S. buyers as negotiations drag into the January window for securing contracts for the first half of the year. The situation has deepened amid steep U.S. tariffs in place since August 2025 and recent diplomatic pressure tied to energy purchases.

With bilateral talks yet to produce a comprehensive deal, Indian firms face the dual challenge of high tariffs and slow resolution, risking reduced export volumes in the upcoming spring-summer season. Exporters are responding with production cuts, market diversification efforts, and strategic realignments — but many say only a clear trade pact can restore order flows and competitiveness.

This article examines the latest developments, sectoral impacts, government responses, and potential future pathways for India–US trade relations.

Current Situation: Negotiations at a Standstill

Exporters under pressure

Indian exporters across textiles, handicrafts, leather goods, gems and jewellery, and home décor reported a sharp drop in U.S. orders following the imposition of punitive 50 per cent U.S. tariffs on Indian goods in August 2025. These levies were among the highest applied to any major trading partner, and they have had a noticeable impact on order volumes and production planning.

Exporters say January is a crucial month for finalising contracts ahead of the U.S. spring-summer and holiday seasons. Without clarity on tariff reductions or exemptions, buyers have delayed placing orders, leaving manufacturers in India with low visibility and increased risk.

Key concerns include:

• Reduced orders during historically busy shipping periods

• Production slowdowns or layoffs to manage inventory risk

• Increased reliance on discounts or cost cuts to retain buyers

• Diversification away from U.S. markets toward Europe, Africa, and Asia

Why Exports Are at Risk Now

High tariffs

The levies have significantly raised the cost of Indian goods entering the U.S. market, eroding price competitiveness and prompting some U.S. buyers to eye alternative sources such as Bangladesh, Vietnam, and China.

The table below summarises the tariff landscape:

Tariff trends in context

Graph 1: U.S. Import Tariff Levels on Indian Goods

This sharp escalation — more than fourfold — has squeezed margins for Indian manufacturers and reduced their appeal in price-sensitive segments, particularly apparel and handicrafts.

Impact on Indian Industries

Textiles and apparel

The textiles and ready-made garment sector accounts for a significant share of India’s foreign exchange earnings from exports. After the tariff surge:

• Many factories cut production runs by 20 – 50 per cent due to cancelled or deferred orders.

• Stocks of input materials have piled up, leading to working capital strains.

• Listed garment manufacturers had earlier experienced volatility in share prices, reflecting trade sentiment.

Leather and footwear

Smaller leather exporters report that margins have been squeezed almost entirely by tariff costs, forcing discounts, capacity cuts, and delayed hiring. Some firms are exploring alternative markets to stabilise revenue.

Gems, jewellery, and home décor

These categories are traditionally strong in the U.S. market but have seen buyer hesitation. Exporters have resorted to setting up overseas subsidiaries or shifting production to tariff-friendlier countries to skirt the levy, although at increased operational cost.

Government and Parliament Responses

In response to the deteriorating export environment, the Indian government has taken several measures:

• Financial support packages: New Delhi has allocated around USD 5 billion in export support to help exporters manage cash flow and tariff costs.

• Parliamentary review: A Parliamentary panel on commerce has begun evaluating the broader impact of high U.S. tariffs, meeting with stakeholders in key cities to understand industry bottlenecks, logistics challenges, and mitigation strategies.

• Diplomatic engagement: Trade and foreign ministry officials are intensifying discussions with the U.S. counterpart on tariff rationalisation and possible phased tariff relief tied to a broader trade agreement.

Diversification and Strategic Adaptation

With the U.S. market under strain, Indian exporters are accelerating diversification into other regions through existing or new trade deals:

• Europe and the UK: India has already signed agreements, including the India–EFTA trade pact and ongoing UK trade arrangements, which reduce tariffs on many goods and open alternate export paths.

• Middle East and Africa: Some exporters are shifting manufacturing or routing shipments through tariff-friendly African hubs to mitigate U.S. levies.

• New markets: Governments and trade bodies are supporting export missions to Latin America and Southeast Asia.

Quantifying the Export Risk

Based on industry estimates and export data, Indian merchandise exports to the United States — historically worth tens of billions annually — are at risk due to tariff barriers and contract delays.

Table: Estimated Export Exposure by Sector (2025 figures)

While not all goods face the same degree of risk, sectors relying heavily on labour-intensive, price-competitive exports are most vulnerable to tariff bottlenecks.

Immediate Outlook and Risks

Spring-Summer Season

Exporters warn that delays in sealing a trade deal by mid-January could jeopardise Spring-Summer orders, typically finalised in December and January each year. Without clarity on tariff rates or exemptions, U.S. buyers are reluctant to commit to new contracts, potentially suppressing trade volumes through mid-2026. The Political and Diplomatic Pressures

Recent remarks from U.S. leadership have added complexity, with public suggestions that tariffs could rise further if policy disputes persist. While nuanced diplomatic engagement continues, such public statements contribute to market jitter and buyer reluctance.

Economic commentators note that unresolved tariff issues not only reduce order flow but could weaken India’s broader trade competitiveness at a time when global supply chains are being reshaped.

Long-Term Prospects and Pathways

While current tensions centre on tariff barriers, the long-term prospects for India–U.S. trade relations depend on reaching a structured agreement that offers mutual benefits. Analysts suggest that:

• A comprehensive bilateral trade agreement could rationalise tariff structures and provide stable market access for Indian exporters.

• Workforce and production competitiveness enhancements would improve global placement beyond the U.S., especially where costs and compliance factors align with international buyers.

• Strategic supply-chain alignment with high-growth markets such as Southeast Asia, the Middle East, and Africa can reduce dependence on any single market.

Trade experts also emphasise that export diversification must be accompanied by improved logistics infrastructure, testing and certification facilities, and trade support mechanisms to sustain resilience.

Conclusion

The unfolding India–U.S. trade situation represents a test of diplomatic and commercial agility for Indian exporters. With U.S. tariffs at historically high levels and a crucial trade deal still pending, the window for securing future orders is narrowing.

Exporters face a complex interplay of tariff costs, delayed contracts, and supply-chain realignment. Government support and alternative market diversification provide partial buffers, but only a credible and timely trade agreement can restore confidence in the U.S. corridor.

As the January deadline passes, all eyes will be on whether negotiators can bridge differences and put in place a framework that supports sustainable trade flows and global growth for both economies.