Saturday, 15 Feb, 2025
IndiaTracker.in
Economy 20-May, 2024

Exploiting US’s Tariff Hike on Chinese Exports: India Opportunity

By: Damini Mehta

Exploiting US’s Tariff Hike on Chinese Exports: India Opportunity

Source: Wikimedia Commons

The Ministry of Commerce and Industry is working on a plan to expand India’s export destinations by entering new markets both product and destination wise. To capitalize on the opportunities presented by the US tariffs on Chinese imports, India needs to implement several strategic measures.

On May 14th, President Joe Biden announced substantial tariff hikes on various Chinese imports, including electric vehicles (EVs), EV batteries, semiconductors, solar cells, and medical equipment. This move, affecting an estimated $18 billion worth of Chinese imports, marks a significant escalation in the ongoing trade tensions between the United States and China. As tariffs on Chinese goods increase, the ripple effects will be felt globally, including in India, which stands to both benefit and face new challenges.

The US has imposed a 100% tariff on Chinese EVs, up from 25%. Tariffs on solar cells have doubled to 50%, and certain steel and aluminum products will now be subject to a 25% tariff, up from 7.5% or less. Additionally, previously untaxed items such as face masks, critical minerals, and ship-to-shore cranes will now incur a 25% tariff. In 2023, the US reported a trade deficit of $ 279 billion with China indicating a significant trade imbalance. The US imported goods worth $427 billion from China and exported $148 billion. 

Experts view the tariff hike as an attempt to diversify the US import basket and reduce dependence on China. Countries across the world faced major supply chain roadblocks during the COVID-19 pandemic when movement of goods and people was restricted and excessive reliance on China for imports of a majority of the products limited options. Developed countries across the world are resorting to a range of protectionist measures as an attempt at reaching a more balanced foreign trade situation. In several cases, these tariff measures and subsidy programs aimed at boosting local production exceed their WTO commitments and signal a shift in prioritization of industrial policy over trade policy. 

India’s Game Play

From the Indian perspective, the move will open channels of exports from India to the US. India's export basket to the US is diverse, including diamonds, medical appliances, agricultural products, refined petroleum, rice, textiles, and apparel. In FY24, Indian exports to the US totaled $77.5 billion, showing a slight decline of 1.32% from the previous fiscal year. Conversely, imports from the US dropped by approximately 20%, amounting to $40.8 billion.

India has substantial manufacturing capabilities in sectors such as medical equipment, pharmaceuticals, and textiles. As the US imposes higher tariffs on Chinese medical products, including face masks, syringes, and gloves, India is well-positioned to fill the resulting supply gap. Notably, in March 2024, exports of medical plastics from India surged by 10.4%, reaching $48.7 million, indicating a growing capacity to meet global demand.

The Ministry of Commerce and Industry is already working on a plan to expand India’s export destinations by entering new markets both product and destination wise. In the light of trade with India's traditional partners such as the US and Europe declining amid geopolitical realignment the government is working on plans to ship goods such as electronics goods, drugs, engineering goods, and food products to new markets. 

India is also working on building domestic capability in manufacturing, especially EVs, due to worry about dumping products by China after the US tariff hike. According to the economic think tank GTRI, US raising tariffs on EVs, batteries and other new technology items may induce China to dump these products in other markets including India. India will have to do a lot more in terms of expanding capacity in EVs and semiconductors as India is a net importer of these products.

Channelising Indian Products to Newer Markets

India, the world's second-largest producer of PPE kits, masks, syringes, and medical gloves, can significantly benefit from the new US tariffs on Chinese medical products. Ajay Sahai, Director General of the Federation of Indian Export Organizations (FIEO), highlights that India’s existing production capabilities in these areas can help it capture a larger share of the US market. The recent growth in exports of medical plastics underscores India's potential to ramp up production in response to increased demand from the US.

While India has potential in medical supplies, the situation is different for products like EVs and semiconductors, where it is currently a net importer. The US tariff hike may lead China to divert its exports of these goods to other markets, including India, raising concerns about possible dumping. Government sources stress the need for vigilance from India's Directorate General of Trade Remedies (DGTR) to prevent any negative impact on the domestic market.

The government is also working to broaden the range of exported goods, from traditional food commodities to more value-added products such as alcoholic beverages, ready-to-eat foods, and processed agricultural products. Iron ore, engineering goods, and pharmaceuticals have been earmarked for export to new markets like Kenya, Saudi Arabia, and France. For instance, overall exports of iron ore rose 117% in FY24, reflecting successful diversification efforts.

The export of agricultural and processed food products stood at $21.6 billion in the 11 months till February 2024 a dip from previous year's exports at $23 billion for the corresponding period.

Policy Caution for India’s Foreign Trade

To capitalize on the opportunities presented by the US tariffs on Chinese imports, India needs to implement several strategic measures. Investing in manufacturing infrastructure for medical equipment, pharmaceuticals, and other high-demand products will be crucial. This includes scaling up production capacities and ensuring compliance with international standards.

Vigilance against dumping is essential to protect domestic industries from a potential influx of Chinese goods. The DGTR must be proactive in monitoring trade flows and imposing necessary safeguards. Expanding into new markets will mitigate risks associated with over-reliance on traditional partners. This requires targeted trade policies and diplomatic efforts to establish and strengthen trade relationships with emerging markets.

Offering incentives to exporters, such as tax breaks, subsidies, and logistical support, can boost India's competitiveness in the global market. Moving up the value chain by exporting more processed and value-added products rather than raw materials can enhance profitability and create more sustainable trade growth. Data from the commerce ministry shows that  export of iron ore to Europe fell 78% from $227 million in FY23 to $50 million in FY24. Overall exports of iron ore, however, rose 117% from $1.80 billion in FY23 to $3.91 billion FY24. Need to expand markets is also indicative in numbers. Exports of engineering goods in Europe remained unchanged in FY24, standing at $27 billion.

Foreign Trade in a Shrinking World

In March 2024, India’s goods trade deficit narrowed by nearly 17% month on month while exports rose only marginally. The trade deficit fell to $15.6 billion in March, down from $18.71 billion in February, and $16.02 billion in January, lowest in 11 months. India is actively seeking to diversify its export destinations beyond traditional partners like the US and Europe, which are increasingly adopting protectionist measures. The Ministry of Commerce has identified new markets for various goods, including Saudi Arabia, France, Vietnam, and Mexico, to reduce dependency on current trading partners.

The US tariff hike on Chinese imports presents a mixed bag of challenges and opportunities for India. By strategically enhancing its manufacturing capabilities, diversifying export markets, and strengthening trade remedies, India can leverage this development to boost its exports and reduce dependency on traditional partners. As global trade dynamics continue to evolve, India's proactive measures will be key to maintaining and enhancing its trade footprint on the world stage.

Share: