The escalating US-China tariff war has serious implications for the Indian tyre & rubber industry as the US is India’s biggest market for rubber products as well as the largest tyre export destination, while China is its largest import partner. It may open the possibility of China considering India as a dumping ground for the tyre and non-tyre products that face tariffs in the US. There is, however, a silver lining as the US and China may depend more on India for their import necessities, thereby giving a fillip to India’s exports to these countries
“When elephants fight, it is the grass that suffers,” says an African proverb, meaning that the weak get hurt in conflicts between the powerful. This is very true of the ongoing tariff tensions between the world’s two largest economies – the US and China.
If the present face off escalates into an all-out trade war between the two countries, it could not only jeopardise their economic interests, but also harm the economies of many smaller countries like India who maintain close trade relations between the US and China.

Tit-for-tat tariffs

The Trump administration set off the trade war by imposing an additional 25% tariff on $ 34 billion of the Chinese goods on July 6, 2018, purportedly to protect domestic industries harmed by imports.
Beijing retaliated with tit-for-tat tariffs on the same amount of the US imports. Washington fired back by releasing an additional list of $ 200 billion worth of Chinese goods on which it would charge a new 10% tax.
President Donald Trump further threatened to place tariffs on all goods worth $ 505 billion dollars imported to the US from China in 2017. The trade war is set to intensify in the coming months as both countries are bent on taking retaliatory measures against each other.

India’s vulnerability

For India, the tariff war could have serious ramifications as the US is its largest export market and China is its largest import partner. The US is India’s largest export destination, accounting for about 15% share of its total exports. The US is also the second largest source of imports for India with total trade in goods at $ 66 billion (April-February 2017-18), as per official data.
India purchased close to $ 70 billion worth of goods from China in the first 11 months of the last fiscal year. However, the Indian exports to China were less than $12 billion.
If the tariff barriers imposed by the US and China play out as announced, global trade could contract, impacting India’s recent upturn in exports, feel experts.

Threat to rubber industry

The Indian tyre and rubber industry is one of the sectors that could be affected by the trade tensions between the US and China. The US is India’s biggest market for rubber products, accounting for 14.1% of its overall exports of rubber products in 2017. The US is also India’s largest tyre export destination, accounting for about 15% share of the total exports.
India exports various rubber products such as new/retreated pneumatic tyres, inner tubes, hoses, vulcanized rubber plates, sheets, beltings, hygienic/pharmaceutical rubber products, etc to the US. India also exports to the US highly engineered rubber products for applications in railways, defence, submarine, highways and other such sectors.
If the US imposes higher tariffs on these products as in the case of the Indian steel and aluminium exports, it would contract India’s exports.
According to reports, the Chinese products in the US tariff list include new and retreaded pneumatic tyres and non-radial rubber tyres used in aircraft, rubber and plastics processing machinery, rubber/plastic gloves, rubber bands, auto parts etc.
Rubber glove manufacturers outside China, especially from Malaysia, could benefit from the US-China trade spat as the gloves are on the US$ 200 billion list of Chinese goods that will be subject to a 10% import tax and hence they could look for a larger pie of the glove market in the US.

India as a dumping ground

China is the world’s largest producer of automotive tyres and is also the world’s largest exporter of tyres – it exports nearly two-thirds of its production. China is also the US’s largest trading partner in tyres, as the value of its tyre exports to the US jumped 28% to $1.95 billion in 2017. The worrisome question is whether China would consider India as a dumping ground for the tyre and non-tyre products that face tariffs in the US.
It was only late last year that India imposed Anti-Dumping Duty on cheap Chinese tyres. The Indian Government has also increased the Customs duty on imported tyres from 10% to 20%. These measures had helped to boost domestic tyre production. But the Indian tyre industry will suffer seriously if China decides to divert surplus tyre production into India at throw-away prices to clear the stock.
There are also worries that the Indian rupee could come under pressure in the global currency markets if the trade war continues. This would dent the profitability of the Indian tyre and rubber products manufacturers who export to many foreign destinations. Reports of the US-China trade tensions have already taken a toll on stock prices of the Indian tyre majors.

Impact on rubber market

The fall in India’s tyre production in the event of a spurt in the Chinese imports could lead to a decline in demand for natural rubber and further fall in NR prices. The rubber futures market has already witnessed a downtrend as anxieties about the Sino-US trade war cast a long shadow over investor sentiment. Trade tensions have come at a time when the international markets had already estimated a supply glut in rubber during the year. The US-China face off could have its fallouts on the synthetic rubber trade as well. The global SR exports and imports have suffered contraction in the first quarter of the current year. According to experts, the escalating trade conflict between the US and China may further dampen the SR trade activities between the two regions in the coming months.

A silver lining

The Government of India should closely monitor the emerging situation and take pre-emptive measures to save the domestic rubber industry from the fallouts of the trade spat between two powerful economies.
A silver lining amid gathering clouds is that there is a possibility that the US and China would consider third producers, including India, for their import necessities. India’s share in USA’s overall imports of rubber products in 2017 was only 1.62% as against China’s 13.41%. So this is an opportune time for the Government of India to step up exports to these countries and thus turn adversity into advantage.