US-China trade war: India sees an opportunity

In January 2018, the US hiked tariffs on certain Chinese products. This started a trade war, prompting both the US as well as China to hike Customs duty on certain products.

There are about 27 lines of trade where US imports to China are over $10 million each and where India has access to the Chinese market. These include tobacco, fresh grapes, rubber adhesives, lubricating oil, polypropylene, alloy steel, optic fibre, unshelled almonds, and walnuts.

There are 14 other lines where the US imports to China are more than $10 million each, but India does not have access to the Chinese market in the case of these items.

“We would need to move in quickly as other countries would also be looking at this opportunity to fill the gap and enhance their exports to China. A similar exercise for possible exports to the US as a result of its tariff on China would also be taken up shortly,” said a letter from the Ministry of Commerce to the ministries of agriculture, textiles, petroleum and natural gas, chemicals and petrochemicals, among others.

China is India’s biggest trading partner, with bilateral trade of $89.6 billion in 2017-18. Potentially, a market size of about $130 billion is there to tap if American goods are out from the Chinese market completely. This is about 10 times of India’s exports to China, which stood at $13.3 billion last year.

However, not all these items will open an opportunity for Indian exporters.

“We are looking at products where the US was a major supplier, but market access is still an issue with China. Imports there are controlled by government-owned state trading corporations, which move very slowly in giving market access,” said Ajay Sahai, director-general and chief executive officer, Federation of Indian Export Organisations.

He cites the example of soya bean, where there is a big opportunity, but China does not allow access to India. China imports soya beans worth $14 billion from the US, which is among the largest producers of the product. “Due to retaliatory tariffs by China on the US, other suppliers like Brazil and Argentina are filling up the space left by the US, while India has limited exportable surplus. If India can produce yellow soya bean seeds, then there could be a huge opportunity,” said the official.

In case of automobiles, the US saloon cars and other automobiles and parts constitute about 27 per cent of Chinese imports. Sahai said while Indian manufacturers already export to China, majority of the Chinese automobile imports come from Europe. Besides, China has also built backward integration in the sector.

China’s retaliatory list had 128 American products, which included agricultural products and automobiles. Of this, 120 items attracted an extra 15 per cent import tax, while eight had to bear 25 per cent tax.

China again levied 25 per cent tariff on 106 US items, which included soya beans, chemicals and automobile, among others. It drew up a third list of 114 American goods, which included diesel and crude oil. A fourth list containing 255 lines of trade will also be out soon.