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

Author

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  • Raju, Sunitha
  • VC, Sabeer
  • Shah, Ninad

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.

Suggested Citation

  • Raju, Sunitha & VC, Sabeer & 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," MPRA Paper 128699, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:128699
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    References listed on IDEAS

    as
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    Keywords

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    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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