The day after Trump tariffs: On Govt table, issue of potential surge in China imports

Exporters, especially steel manufacturers, had raised concerns with the government following Trump’s decision to impose 25 per cent tariffs on steel and aluminium. In response, the Commerce and Industry Ministry, already investigating dumping, recommended that the Finance Ministry impose a 12 per cent safeguard duty on steel. This came despite protest from the small scale industry surge in steel cost due to the steel duty.

While the Commerce and Industry Ministry spokesperson was unavailable for comment, a government official said that clarity on the impact of US tariffs would emerge only after 10 to 15 days of observing their effect on India. Another official noted that India has opted for negotiations with the US rather than a “retaliatory approach”.

This strategy differs from the approach taken during the first Trump administration when India responded to steel and aluminium tariffs with countermeasures.

Meanwhile, economists and trade experts have also echoed concerns over a surge in exports from China. A research note by HDFC Bank Friday stated that apart from the direct impact of US tariffs on Indian exports, India faces a “high risk” of oversupply from China, which could hurt domestic manufacturing.

“With the tariff increase on Chinese goods effectively exceeding 60 per cent now, it is more likely that more of China’s supply could flow into other markets. This makes domestic manufacturing in countries like India vulnerable to cheaper Chinese oversupply,” said the note by Sakshi Gupta, Principal Economist at HDFC Bank.

According to Crisil Ratings, India faces a high risk of indirect impacts from US tariffs, particularly in electronics, machinery, and textiles, as Chinese exporters may divert their shipments to India as part of a geographical diversification strategy.

“Top Chinese exports to the US, including electronics, machinery, and textiles, are particularly vulnerable to dumping, and their influx into the Indian market could impact domestic industries. However, the Indian government may impose anti-dumping duties to safeguard Indian exporters and mitigate any potential damage,” Crisil Ratings stated.

International think tank the Lowy Institute, in a recent research paper, estimated that about 80 per cent of countries traded more with China than with the US in 2023. However, US remains a key driver of global demand, particularly as it has increased imports from countries such as Vietnam and Mexico, shifting away from China after the first round of Trump-era tariff hikes.

“This increase in imports from China is a combination of US tariffs prompting China to diversify into other markets and a redirection of its exports (parts and components) via other countries that ultimately serve the US market,” the think tank said.

Former trade officer and head of think tank Global Trade Research Initiative (GTRI), Ajay Srivastava, said that India must steer clear of the escalating US-China trade war.

“With both powers imposing 34 per cent tariffs on each other—raising total US tariffs on Chinese goods to 54 per cent—China’s retaliation is expected to create a glut of US soybeans and corn, commodities China heavily imports from the US,” Srivastava said.

The National Trade Estimates Report released by the USTR on March 31 said that India prohibits the importation of ethanol for fuel use and requires an import licence from the Directorate General of Foreign Trade (DGFT) for ethanol imports for non-fuel purposes.

“Any move by India to lower tariffs or allow corn imports for ethanol conversion could assist the US but risks being perceived by China as taking sides. This could apply to more products and may trigger backlash from China, including a potential halt in critical exports like electronics and machinery, as seen in recent months,” he said.