U.S. tariff hikes put Kerala in a spot of bother

Sitting in his swanky office in Kizhakkambalam village on the outskirts of Kochi, Sabu M. Jacob, managing director of Kitex Garments Ltd, took a decisive business decision last month.

The Kochi-based garment exporter announced his decision to open an outlet of Little Star, the brand that had been exclusively sold in the United States for newborns and children, in the city even as the tariff war announced by U.S. President Donald Trump earlier this year continued to upset economies worldwide.

Any businessman worth his salt may be aware of the fact that it may not be an easy task for any brand that has been successful in the U.S. market for a long time to capture its share of the domestic market.

Yet, Sabu, who had taken a daring dive into the State’s electoral politics by launching its first-ever corporate-controlled political outfit, Twenty20, decided to take a plunge by opening the outlet in Kochi, his hometown. The company plans to divert its entire garment export business to the domestic market over the next two years.

“It was a blessing in disguise,” feels Sabu.

“The prickly tariff policies of the U.S. are likely to persist, in one form or the other, throughout Trump’s term. We’re looking at this as an opportunity. Initially we were also shocked by the tariffs. Our entire export business has been focussed on the U.S. market so far. We did not expect them to be this high,” he says.

For Kerala, the tariff announcements could not have come at a more inopportune moment.

In recent years, Kerala’s traditional export commodities have struggled to keep pace with competition from other States and foreign players, despite an increase in their export volumes. The U.S. announcements have impacted a wide range of export commodities, including seafood, garments, spices, and coir products.

Kerala’s seafood exports were among the Indian sectors to feel the first tremors. Exporters from the southern State found themselves in trouble when their U.S. buyers wanted all shipments on hold until the dust settled following the presidential announcements.

As September rolls in, the sense of misgiving remains stronger than ever. As negotiations and uncertainties drag on, the exporting community in the State prepares to hunker down for the long haul, hoping that things will turn for the better and markets reopen soon.

“Buyers wanted all shipments to the U.S. to be put on hold from August 1 on account of the uncertainty. The penal tariffs announced on August 6 added to the apprehension. Now, some amount of clarity has emerged that Trump is not going to back down, at least not immediately,” says K.N. Raghavan, Secretary General of the Seafood Exporters Association of India.

What is it that makes the U.S. market so attractive to exporters here?

The fact that Americans are good paymasters and transparent and smooth procedures make negotiating the U.S. market a comfortable proposition, say exporters in Kerala. There have been suggestions that exporters in Kerala and elsewhere in India should diversify their markets, exploring opportunities in China and the European Union. While these are options that should be explored, how far they would provide immediate relief from the impacts of the U.S. tariffs is questionable, export forums point out.

Trump Tariffs and Kerala’s Export Sectors: A Preliminary Overview, jointly penned by R. Ramakumar, V. Namasivayam and C.A. Ruthu of the Kerala State Planning Board, presented at a recent round-table discussion on the tariff-related developments, reveals a clearer picture of Kerala’s overall exports and the export share to the U.S.

Of the total exports valued at ₹40,388 crore in 2024-25, the exports to the U.S. alone were worth ₹8,345 crore, a jump from ₹4,379 crore a full decade ago. Commodities that have seen an increase in exports include marine products, spices, garments, electronic components, and electric machinery and equipment.

In the case of seafood, Kerala is the third-largest exporter in the country in terms of quantity and second in terms of export value. A glance at export figures is enough to understand the importance of the U.S. market for Kerala’s marine products.

While Kerala’s total seafood exports rose from ₹5,272 crore in 2014-15 to ₹6,375 crore in 2024-25, the export value of products to the U.S. jumped from ₹526 crore to ₹1,021 crore during the same period, accounting for 12.2%, according to the State Planning Board. During the ten years, Kerala’s overall spices exports rose from ₹3,068 crore to ₹6,252 crore, while the U.S. share went up from ₹776 crore to ₹1,736 crore, which accounted for 20.8%.

Once renowned for the splendid flavours of its spices, Kerala now struggles with competition on the international scene. Companies in Kerala import many products and process them here for export due to inadequate local availability. Major spice exports include black pepper, cardamom, ginger, and other spices, as well as spice oils.

“The consignments had already been imported and processed. Many companies in the U.S. have asked us to delay the shipments, although they have not cancelled consignments,” says Emmanuel Nambusseril, chairman of the All-India Spices Exporters Forum.

The U.S. accounts for $600 million to $700 million of the spices export — both dry spices and extracts — from the State, points out Emmanuel.

A comparison of the three-year average values for commodities exported to the U.S. shows that spices export to the U.S. rose in average value from ₹973 crore during 2015, 2016, and 2017 to ₹1,409 crore in 2023, 2024 and 2025. Marine product exports went up from ₹513 crore to ₹1,093 crore, according to the Planning Board presentation.

Readymade garment exports have also shown a jump from ₹464 crore to ₹705 crore. Nevertheless, the latter is another sector that at present finds itself mired in problems.

For some commodities, the impacts are more likely to be indirect, exporters feel. For instance, Kerala’s cashew exports to the U.S. have dwindled over the past decade (from ₹1,093 crore to ₹57 crore), but in this case, the threat is of a different nature, they say.

Much of Kerala’s exports today are directed towards West Asia, although there are also a few exporters to the U.S. Compared to the 2015-17 period, cashew exports to the U.S. have dipped from ₹961 crore to ₹59 crore during 2023-2025.

“The higher tariffs imposed by the U.S. on other cashew-producing countries, say, for instance, Vietnam, could force these countries to look at West Asian markets. They may also start looking at the Indian domestic market. So there could be indirect impacts of the U.S. tariffs on Kerala’s cashew sector, which is already in crisis, as well,” feels Shiyaz Hussain of Bismi Cashew Company, a cashew exporting firm in Kollam.

After the initial tremors caused by the April 25 announcements regarding the ‘reciprocal tariffs’ in April, Trump’s ensuing announcement on the additional penal tariff of 25% on India for buying Russian oil has deepened concerns among exporters on shipments already in transit.

The Communist Party of India (Marxist)-led Left Democratic Front Kerala government has been closely monitoring the developments.

State Finance Minister K.N. Balagopal fears that the tariff war initiated by the Trump regime could prove more disastrous for the Kerala economy than the impacts of the COVID-19 pandemic. He emphasises the need for Kerala to prepare effectively to manage the crisis in its trade economy resulting from the U.S. decisions.

With uncertainty looming large over Kerala’s external exports, the Gulati Institute of Finance and Taxation, an autonomous institute under the Finance department, and the Kerala State Planning Board organised a roundtable last month to discuss the way forward.

Participating in the event, former Union Cabinet Secretary K.M. Chandrasekhar urged Kerala and other States to submit supplementary memoranda before the 16th Finance Commission, urging the panel to take into account the impacts of U.S. tariff policies as well as the proposed Goods and Services Tax rate rejig on their economies.

State Industries Minister P. Rajeeve took the initiative to convene a meeting with the State-Level Bankers Committee as part of the efforts to address the financial issues faced by exporters following the U.S. decision.

“It was basically a confidence-building measure meant to assure exporters that the Kerala government is with them. We are also taking steps through the Kerala State Industrial Development Corporation and the Loka Kerala Sabha network to explore new markets and support Kerala exports,” says Rajeeve.

While the trading community of Kerala welcomes the free trade agreement with the United Kingdom and the proposed one with the European Union, they apprehend that it could take months to get things operationalised.

“In the short term, we can try looking at alternative markets. But then, it is not as if these are virgin markets. There are already sellers there. Displacing them will be a tough call. Other markets are China, the European Union and Japan. But China has smelled blood and they will try to bring down prices as India is having problems with access to the U.S. market,” observes Raghavan.

Trade bodies have called for sector-specific relief measures and extension of credit lines and moratoriums on interest payments to overcome the crisis.

It’s testing time for the State’s economy, which is struggling to stay afloat.