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Trade War Opportunity For India

The rift between the two big economies also provides an opportune moment to aggressively woo investors into India as they seek relocation from China, before they are allured by others.

Photo Credit : Reuters


Trade War

The US-China trade war rhetoric began when Trump was running for Presidency in 2016. However, the spark began when US enforced heavy tariffs on imported steel and aluminum items from China in March 2018, which led to China imposing tit-for-tat tariffs on billions of dollars’ worth of American imports.

The US trade deficit jumped nearly 10% in 2018, pushing the trade imbalance to widen to a decade-long high of US$ 950 billion. US and China overall trade amplified by a whopping 462% since 2001, and by over 80% in last 10 years alone. The sore point is that the trade has been remarkably been in favour of China. The gap with China on goods widened to an all-time record of $ 442 billion. Trump wants to address this trade anomaly.

It may also be observed that the China’s accession to WTO in 2001, it has benefitted significantly with China’s share in global trade increased from 4% in 2001 to 14% in 2018. During the same period US experienced a decline in share in world trade from 11% to 9%. 

Story so far for India

China’s imports from the US registered a growth rate of over 14% in 2017 vis-à-vis 2016, but dropped drastically to 1% growth in 2018 over 2017, as a result of the trade war. The oilseeds (predominantly soybean) imports by China contributed to just 9% of China’s imports from the USA in 2018, exhibiting a decline of (-) 47% in 2018 over 2017 – the lowest since 2007. While India could have been a potential exporter of soybean to China in 2018, China imported over 75% of its soybean imports from Brazil, up from 52.8% in 2017 and 45.8% in 2016.

As a result of trade war, countries across the globe have involved themselves into trade negotiations. In 2018, India slashed import duties on 3142 items imported from its Asian neighbours under the Asia Pacific Trade Agreement (APTA). Also, China, on its part, initiated a reduction or removal of duties on 8500 items for APTA partners in sectors such as agricultural produce, pharmaceuticals, and other goods that have suffered a tariff hike in the US. 

Opportunity for India
Amidst this trade-war, economies like India with a combined export share of 21% to US and China should ideally stand to benefit. This could also be an opportunity which could give India a chance to enter markets with products which would have been difficult otherwise. The US has largely targeted intermediate components from China, particularly machinery and electronics, whereas China is targeting American automotive and agricultural products including soybean. There has been multiple rounds of tariffs retaliation of both the US and China in the last 15 months. The US has imposed tariffs on almost 6540 Chinese items, while in retribution China has imposed tariffs on almost 2500 items of the US. 

At a broader level the ongoing trade war between the US and China could help India tap export opportunities in both the countries in areas such as garments, agriculture, automobile and machinery. 

Analysis shows that for the items where the US has imposed tariffs on China, India had exports worth US$ 24.3 billion to the USA (which is equivalent to 47% of total exports to USA) in 2018, and within which on US$ 17.5 billion worth of exports, India has exhibited an export specialization in the US market. In fact, over 70% of this US$ 17.5 billion exports came from just 5 sectors (referring to the table).

Similarly, where China has imposed tariffs on the US items, India’s exports to China stood at $7.6 billion in 2018 (which is equivalent to 46% of India’s total exports to China), of which on $6 billion worth of exports India has an export specialisation in the Chinese market. Almost 88% of this $6 billion exports comes from just 5 sectors (referring to the table).

The export specialization for India in this case is calculated as the ratio of the share of a product in India’s total exports to the share of the product in imports to any specific market, which essentially reveals specialization in the export sector of India. 

The data however have a slight element of over-estimation given that the analysis has been done at harmonized 6 digit level, whereas the tariff lines are at 8 digit, given the fact that an international comparison is not possible beyond 6 digit.  

Opportunity for India in key sectors where tariffs are imposed (US$ Billion)



In China


Mineral Products


Chemical and allied


Agriculture and allied


Mineral Products


Machinery and electrical equipment.


Textile and Garments


Chemical and allied


Agriculture & Allied


Base metals and articles


Machinery, electrical equipment etc.


Source: UNCOMTRADE; Author’s calculations


While India does have an opportunity in the ongoing trade war, it is important for hence to have a parallel engagement in negotiations with China under APTA as and when there is a review exercise. There are various benefits for India to negotiate under APTA, as the tariff benefits differs for the parties under APTA. For instance, US corn is subject to 25% duty in China, while under APTA countries can get up to 100% concessions on corn exports to China. India’s exports to world, in case of corn, were over 30% of China’s imports from world, which is a significant figure. However, China had almost nil imports of corn from India in 2018. 

This already yearlong trade war is here to stay. India could make an effort to tap the combined opportunity of around US$ 32 billion – even if the overestimation caused due to harmonized codes is acknowledged, a third of this figure could actually be achieved by India.

The rift between the two big economies also provides an opportune moment to aggressively woo investors into India as they seek relocation from China, before they are allured by others.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Tags assigned to this article:
trade china india

Rahul Mazumdar

The author is Economist, EXIM Bank

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