scorecardUS-China tariff war could benefit several sectors in India while harming a few others
  1. Home
  2. finance
  3. trade
  4. article
  5. US-China tariff war could benefit several sectors in India while harming a few others

US-China tariff war could benefit several sectors in India while harming a few others

US-China tariff war could benefit several sectors in India while harming a few others
Finance4 min read
Representational image    ANI
Last week, the President of the United States, Joe Biden, announced significant tariffs on a range of Chinese products to protect American workers from unfair trade practices. The targetted measures include a 100% tariff on electric vehicles, a 50% tariff on semiconductors and solar cells, and a 25% tariffs on batteries, steel and aluminium products, some critical minerals, and essential health equipment like medical gloves, syringes and needles.

In his address from the Rose Garden of the White House, Biden said America can continue to buy any kind of car they want, "but we're never going to allow China to unfairly control the market for these cars. Period." He claimed that the Chinese government has been investing state funds in various Chinese companies for years, spanning industries across the above-mentioned sectors.

How does this brewing geopolitical trade war impact Indian firms? Experts say the impact could be in two ways, benefitting some sectors, while harming the few others. Let’s start with the bad news.

Threat to Indian firms

Beijing offers significant subsidies on most of these products, leading to surplus production that exceeds domestic and even regular export demand. Subsequently, Chinese companies are known to flood the global markets with surplus products at unreasonably low prices, forcing local manufacturers out of business in many countries, including India.

A prime example of this in practice can be found in the steel sector, where weak domestic demand is pushing the world’s largest steel producer China to offload surplus production into Indian markets at cheaper prices. Indian steel manufacturers are already struggling to compete with a glut of cheaper Chinese steel, with shipments nearly doubling year-on-year in the financial year ending March 2024.

“India is already under grave threat of import because all major steel consuming economies are shutting their doors on these steel producing countries. We are highly vulnerable to surging and predatory import,” said Alok Sahay, secretary general of the Indian Steel Association, to Reuters.

Global trade experts say that a majority of Chinese products are sold at unreasonably low prices in global markets because the companies in these sectors do not have to worry about profits. They are heavily subsidised by the Chinese government.

Steel Authority of India’s (SAIL) chairman Amarendu Prakash also said that they are keenly watching Chinese imports after the US tariff increases.

Additionally, China has been accused of employing anti-competitive strategies like compelling foreign companies to transfer their technology in order to operate in China. These factors have led to the US effectively shutting its door on several Chinese products through heightened tariffs, and other developed markets like Canada are also likely to follow suit. White House also emphasised that it continues to consult with its partners and allies who are facing similar threats from China’s unfair trade practices and are keen on taking action.

If more and more global markets restrict entry of Chinese products, the risk of the majority of such products being dumped in neighbouring India increases drastically.

Trying to block Chinese excess production "is like squeezing a balloon. It shrinks in one place and pops out in another," William Reinsch, a trade expert at the Center for Strategic and International Studies in Washington, tells Reuters.

An opportunity also arises

While some products risk being dumped into the Indian market, in a few other cases, Indian firms could benefit from fresh openings in the lucrative US market.

"Of the products affected, India has opportunities in face masks, PPE, syringes &needles, medical gloves, aluminium, iron, and steel. Opportunity may come in China also with retaliation, provided we have market access in products targeted by China," Ajay Sahai, Director General of the Federation of Indian Export Organisations (FIEO), told ANI.

However, China is not likely to retaliate against the US tariffs at the moment, say experts, though the country’s Ministry of Commerce said it would take 'resolute measures to safeguard its own rights and interests'

"China's economy is fragile. With household spending and the property market on the wane, manufacturing for export markets is one of its few bright spots. Beijing will not want to cut off its nose to spite its face. More broadly, China is desperately trying to encourage new foreign investment. Rash retaliatory action could spoil its case," Moody's Analytics explained in a recent report.

Out of China's USD 420 billion exports to the US, only USD 18 billion is impacted due to the latest hike in tariffs — representing slightly over 4% and therefore considered marginal. But Sahai says that this market will continue to grow with time and provides an opportunity to India and other competitors to chip in the supply gap.

Ajay Srivastava, the founder of the Global Trade Research Initiative (GTRI), also echoes Sahai’s opinions. He emphasised that the increased duties on Chinese face masks, syringes, needles, medical gloves, and natural graphite offer a substantial opportunity for India, as quoted by ANI.

"By ramping up production and export of these in-demand products, India could enhance its trade footprint in the US market," he added. In terms of products like electric vehicles and semiconductors, India remains a net importer, and therefore, may not be in a position to capitalise right now.

In the long term, however, as India begins semiconductor production at scale in 2025, there will be opportunities to export some of it to the US and other European countries, offering fresh impetus for domestic manufacturing. As the security risks associated with importing Chinese semiconductors prompts more and more trade barriers from the Western countries, demand for supply from India is likely to grow. Efforts are already underway for the establishment of four large semiconductor plants in India, with three located in Gujarat and one in Assam.

Last fiscal year, Indian exports to the US dipped marginally by 1.32 per cent to $77.5 billion as against $78.54 billion in 2022-23. The new development now gives an unique opportunity to turn the tide over the next few years.

Overall, some sectors like steel and aluminium do face a serious challenge due to the fresh US tariffs on Chinese products. However, the development will open new avenues for Western market entry and expansion for several other products.

(With inputs from agencies)