A tariff battle on imports worth billions of dollars between the US and China has created immense opportunities for India’s exports to both countries.
The import tariffs by the US have affected about 531 Chinese products. The trade in these products is valued at US$30.6 billion. Indian exporters can provide China with at least 203 of the items tariffed by the US, according to a study led by India’s Ministry of Commerce. India exported US$22.2 billion worth of these products, but only US $2.4 billion of it went to the US.
Similarly, the study notes that India can export 151 of the 774 American products tariffed by China. The US exports to China are worth US$20.4 billion a year. India exported US$32.8 billion worth of these products, but only US $2.9 billion per annum to China.
The government in India is keen to reduce its trade deficit with China for several years and the prolonged trade war appears to have inspired the Ministry of Commerce to announced these findings.
In the 2018-19 financial year, the trade deficit between India and China stood as US$52 billion – the highest that India has with any of its other trading partners.
Export products in demand
The Commerce Ministry report has identified the following domestic items that can meet increased demand from the US market:
- Industrial valves;
- Vulcanized rubber;
- Radial tires used on buses;
- Carbon or graphite electrodes;
- Sacks and bags of polymers of ethylene; and
- Natural honey
There is also a strong opportunity for India to export apparel and readymade garments to the US, as India is the only country that can match China in terms of the scale.
According to industry experts, India can also enhance its exports in information and communication technology (ICT) and the automotive sector.
Domestic items that can replace US products in China are:
- Copper ores and concentrates;
- Paper or paperboard;
- Equipment for transmission data in a wired network; and
In addition to the above items, India can use the opportunity to gain better market access in China on a wide range of agriculture and processed food products.
Incentives for trade war casualties possible
The government of India is reportedly considering ways to incentivize companies moving out of China because of the trade war. The reports suggest that the government would like to mirror the policies used in countries like Vietnam and Malaysia.
According to media reports, the Ministry of Trade is considering offering financial incentives, including preferential tax rates and a tax holiday to industries such as electronics, footwear and toys, consumer appliances, and electric vehicles.
While the government may be able to achieve a financial incentive package for businesses seeking to shift their supply chains out of China, adjusting government procurement laws and developing new industrial zone plans appear to be longer-term measures to make India a more attractive manufacturing destination.