Tariff war between US & China to open up trade opportunities for India

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The latest round of the tariff war between the US and its largest trade partner China, is set to present a significant opportunity for India. US President Joe Biden, in a move that is seen as a protectionist measure to reduce trade imbalance, imposed heavy tariffs on Chinese products including batteries, EVs, steel, solar cells, and aluminium. These tariffs encompass a 100 per cent tariff on electric vehicles, a 50 per cent tariff on semiconductors, and a 25 per cent tariff on electric vehicle batteries imported from China.

The other items that will attract higher tariffs are medical gloves, syringes and needles, some critical minerals, and solar cells, among others. These proposed increases are a part of the US’ broader strategy under Section 301 of the Trade Act of 1974, aimed at combating what it deems as unfair trade practices by China. The US Trade Representative, Katherine Tai, emphasized that these measures are necessary to counter the flooding of global markets with low-cost Chinese products.

“Of the products affected, India has opportunities in face masks, PPE, syringes &needles, medical gloves, aluminium and 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. According to Sahai, the US’ move will start a tariff war between the two countries with retaliation expected from China. USD 18 billion out of USD 420 billion exports of China to the US is affected, which he said is little over 4 per cent and thus marginal.

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“It will further increase in times to come,” Sahai said, adding that this provides opportunity to India and other competitors to chip in the supply gap. Asked if China would dump tariff-imposed products in neighbouring India, Sahai said China is sitting on overcapacity and thus threat of dumping is any case not ruled out and more so when an important market is closed for their exports. “I am sure industry and the Government will be keeping a close watch on imports and if surge or dumping happens, DGTR will take appropriate action to safeguard our industry,” he asserted.

Ajay Srivastava, the founder of the Global Trade Research Initiative (GTRI), said both the US and the EU are cutting the import of electric vehicles from China. “The raising of tariff on EVs, batteries and many other new technology items by the US may push China to dump these products in other markers including India,” Srivastava further noted, adding that it’s a moment for India’s Directorate General of Trade Remedies (DGTR) to remain vigilant.

Echoing a similar view to that of FIEO’s Sahai, Srivastava also asserted that higher duties on Chinese face masks, syringes and needles, medical gloves, and natural graphite present a significant opportunity for India. “By ramping up production and export of these in-demand products, India could enhance its trade footprint in the US market,” he added. India may not get any export advantage on remaining products like EVs, and semiconductors as India is the net importer of these products.

But in the long run, with India starting the semiconductor in scale from 2025, will be able to export some of it to the US and other countries in Europe. Work is on for four semiconductor plants in India – three in Gujarat and one in Assam. The same goes for electric vehicles. Various automobile companies are manufacturing EVs in India, both for domestic sales and for exports. The Indian electric vehicle ecosystem is currently in the initial stages of development but has been gaining traction. In 2021, EV registrations amounted to 330,000 units, a jump of 168 per cent from 2020. The sales were led by 2- and 3-wheelers -48 per cent and 47 per cent, respectively – followed by passenger vehicles at 4 per cent, as per a report by EY and IndusLaw.