What a trade war might mean for India

It is not the direct impact of tariffs of steel and aluminium that are a major concern to India’s economy but the potential of wider repercussions that would take a bigger toll. Vicky Jain in Mumbai is very worried about United States president Donald Trump’s move to increase tariffs on steel.

As a steel exporter who ships stainless steel raw materials to the US, one of his most important markets, he says if India is not exempt from the tariffs, his company will be hit by the hikes, which will increase his costs and could make his products uncompetitive.

“This will surely have an effect on our business,” says Mr Jain, a partner in Salem Steel Industries, which has exported goods to the US for two decades. “It’s definitely going against our interests.”

Mr Trump in March delivered a shock announcement that tariffs of 25 per cent and 10 per cent will be imposed on steel and aluminium, respectively, in a move to protect US national security and economic interests, including jobs.

India is the world’s fourteenth-largest steel exporter, exporting 4.9 million tonnes of steel in the financial year to the end of March 2017 worth $3.1 billion, according to figures from the United States International Trade Administration. India’s steel exports to the US totalled 900,000 tonnes last year, accounting for just 2 per cent
of US steel imports and 5 per cent of India’s steel exports, while 100,000 tonnes of aluminium was exported to the US, again accounting for 2 per cent of imports of the metal into the US, data from the US Department of Commerce and Kotak Institutional Equities show.

The numbers are small compared to China, the world’s largest steel exporter, which ships more than 100 million tonnes globally of the metal every year.
Consequently, analysts say it is not the direct impact of the tariffs that are a major concern to India’s economy – although businesses like Mr Jain’s will feel the pinch and exports will certainly be hit – but that it throws up the potential of trade wars that would take a bigger toll on India.

“It is the ease with which the United States is increasing tariffs citing national security that should concern India,” says Sanjay Notani, a partner at Economic Laws Practice, a law firm based in Mumbai. “In the future, it is not improbable that the United States could increase tariffs on products that may hit Indian exports hard.”

The issue is of such concern to India that in March hosted an informal World Trade Organisation (WTO) ministerial meeting, attended by representatives from some 50 countries, to try to push against protectionist measures. Many industry leaders in India are calling for a diplomatic approach, amid fears that retaliation would ultimately only harm the country’s economy. Indi’a’s trade deficit hit a near five-year high in January, which makes it all the more important for the country to strive to boost its exports.

“Countries across the world should think beyond retaliatory measures to counter the challenges,” says Rashesh Shah, the president of the Federation of Indian Chambers of Commerce and Industry a lobby group.“India can play a significant role in guiding this exercise to diffuse the emerging possibilities of a global trade
war.”

Meanwhile, within the metals sector, there are fears that there could also be a knock-on effect of steel being dumped in India from other markets. The steel sector accounts for 2 per cent of India’s GDP, according to
data from the Indian government.