Since the US is China’s single largest importer of tyres, any tariff barrier imposed by the US will mean such imports will get diverted to other countries, especially India being a fast-growing market. That’s a major concern for the Indian tyre industry, says Anant Goenka, Chairman of Automotive Tyre Manufacturers Association (ATMA).
In an interview to Rubber Asia, he emphasizes that Government of India should urgently safeguard the interest of the domestic industry by enhancing the quantum of Anti-Dumping Duty while keeping a watch that Chinese imports are not diverted through any other country. EXCERPTS:
What could be the likely impact of the US-China trade war on Indian tyre & rubber industry?
There is still a lot of uncertainty about how the ongoing retaliatory tariff war between the US and China will pan out for the Indian tyre and rubber industry. However, as history tells us, when trade war happens, it just doesn’t affect the two economies involved but all the economies linked to world trade. As a natural corollary, India will get dragged in this trade war.
India is a part of global ecosystem and the Indian economy is globally integrated. Notwithstanding the fact that India is known as a domestically-driven economy and not export-driven like China, international trade has a large role to play in India’s growth as an economic superpower.
As a matter of fact, India’s exports plus imports of goods and services constitute around 42% of GDP. Moreover, India has a current account deficit which is dependent on external capital inflows for financing. Even a minor disruption in the US financial markets can have major implications for India. Rising interest rates in the US could mean a dampener for the India’s equity market as American investors will look to chase higher returns in their home market.
The biggest impact could be on the rupee which is already battling historic lows against the US dollar. India has higher exposure to commodities, especially oil imports. The rising price of oil threatens to widen India’s current account deficit, impacting India’s macroeconomic stability. The Tyre & Rubber sector can’t expect to be an exception to the emerging realities.
What are the Indian tyre and non-tyre products that could be affected by the US tariff?
The US has emerged as India’s largest tyre exporting destination, accounting for about 15% share of the total exports. Tyre exports from India witnessed a healthy 13% increase in volume terms from 24.4 million nos in Apr-Jan’17 to (27.7 million) nos in Apr-Jan’18 period. Tyre’s is one such industry which has consistently been a foreign exchange earner. Any disruption with the US will affect India’s tyre exports.
In fact, there is an immediate concern that the US may not renew the GSP (Generalized System of Preferences) benefit for India. GSP is a US trade programme designed to promote economic growth in the developing world by providing preferential duty-free entry. If GSP is not renewed, India’s export to USA will have a negative price impact of 3%.
According to reports, the Chinese products in the proposed US tariff list include new and retreaded pneumatic tyres, non-radial rubber tyres used in aircraft, and several types of machinery for molding or processing rubber and plastics, apart from a long list of motor vehicles. How could this affect the Indian tyre & rubber industry.
In any tariff war-like situation, the basic economic principles of demand and supply comes into play. The short supply of a particular item, be it raw material or finished good, increases the end-consumer’s price. The Indian tyre industry is increasingly converging with the world and is a part of several supply chains. Therefore, an impact on India is evident.
Do you see the possibility of China dumping surplus tyre production into India at throwaway prices in the wake of the US tariff? If yes, what could be its implications for the domestic industry?
Yes, that’s a major concern for Indian tyre industry. Since the US is China’s single largest importer of tyres, any tariff barrier will mean such imports will get diverted to other countries, especially India being a fast-growing market. As such, India has been bearing the brunt of indiscriminate import of the Chinese tyres till recently.
Recognizing that importing countries are taking action against tyres of China origin, the Chinese tyre companies have already set up (and in the process of setting up in an accelerated manner) tyre plants outside of China, especially in the ASEAN region, viz Thailand, Vietnam, Indonesia etc. This does not augur well for India as low-priced dumped imports may continue to take place and only the place of origin may differ.
Tyre imports to India are on the decline after the Government imposed Anti-Dumping Duty on certain types of tyres imported from China and hiked the Customs duty on imported truck & bus radial tyres. What additional steps should the Government of India take to protect the domestic industry?
The Government has taken some key initiatives in this regard. In its recommendation, the Directorate General of Anti-Dumping and Allied Duties (DGAD) has stated that the domestic industry has suffered material injury on account of the imports from China and that tyres have been exported to India from China at ‘below normal value’
The introduction of Anti-Dumping Duty (ADD) has therefore been a welcome step and has helped in making the field less skewed for the Indian manufacturers. However, the quantum of anti-dumping duty could have been higher to match the injury margin. The margin of injury to the industry is 30-35% whereas the quantum of ADD imposed is much lower. The Government should urgently safeguard the interest of domestic industry by enhancing the quantum of ADD while keeping a watch that the Chinese imports are not diverted through any other country.