Mapping US Tariff Shock at Product Level and Assessing the Transmission Effects of the Supply Chain: A Case of Indian Textile Industry

Raju, Sunitha and VC, Sabeer and Shah, Ninad (2025): Mapping US Tariff Shock at Product Level and Assessing the Transmission Effects of the Supply Chain: A Case of Indian Textile Industry. Published in: IIFT Working Paper No. WPS No. EC-25-81

Abstract

With India facing highest US reciprocal tariff of 50%, this paper estimates the Direct and Indirect effects of the tariff shock on Indian Textile industry. Using a CES demand model, we estimate the counterfactual demand under 50% and 25% tariff scenarios, structured into two stages. In the first stage, we quantify the tariff induced import changes of 656 textile products at HS 6-digit level and decompose into Direct Tariff effect and Third country tariff effect (Indirect). In the second stage, we quantify the transmission effect along the supply chain using I-O tables. Our analysis shows that US textile imports from India would decline by over US$ 6.6 billion under 50% tariff. Apparel and Made ups face the largest losses. Given the inter-industry linkages, first-order indirect effects are US$ 4.6 billion, including US$ 1.4 billion within the textile sector. Chemicals, agriculture, and trade services account for roughly 40% of these upstream losses. The alternative 25% tariff scenario results in a decline of US$ 2.1 billion in US textile imports, implying that the punitive tariff accounts for the additional US$ 4.5 billion. We conclude that India should negotiate for 25% or lower tariff and focus on alternate markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: Trade policy, Tariffs, Indian textiles, Partial equilibrium, Supply chain
• Subjects: F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F1 - Trade > F17 - Trade Forecasting and Simulation; O - Economic Development, Innovation, Technological Change, and Growth > O2 - Development Planning and Policy > O24 - Trade Policy ; Factor Movement Policy ; Foreign Exchange Policy

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