Trade war strains US ag sector; China eyes India’s rubber goods market

May 17, 2019

As the love-hate trade relationship between the US and China ensues, the rest of the world shield their industries from shakeups and breakups.

On May 10, and following a series of negotiations to reach an amenable deal, the US has effected its tariff increase on US$200 billion worth of Chinese goods from 10% to 25%;  On top of an impending tariff hikes on US$60 billion worth of US exports effective 1st June,  China, is anticipated to browbeat the US with “necessary countermeasures”, quoting China’s Ministry of Commerce that also commented: “The escalation of trade friction is not in the interests of the people of the two countries and the people of the world. China feels deeply sorry for that”.

While China has yet to reveal what those countermeasures are, some experts see a window of hope that the tension could still be quelled. On the other hand, Presidential chief economic adviser Larry Kudlow speculated that it is just a matter of that China even the score. It may impose stringent measures such as regulatory restrictions that could impact US companies that are based in China. 

US agricultural sector takes the heat 

Kudlow was quoted saying that China, which levies a 25% tariff on agricultural commodity imports from the US could double, as result of the recent tariff move of the US.

According to an IHS Markit analysis, the US agriculture sector is strongly impacted by trade war with China. US exports to China of agricultural products have decreased due to the Chinese tariff hike; and the latter has started getting its supplies from other countries. This, thus, has prompted the US to find alternative markets for some of the agricultural products.

To protect US farmers, a US$15 to 20 billion relief package is bankrolled to offset losses from farm products hit by China’s retaliatory tariffs.

The latest pledge is the second tract of farm aid after the US$12 billion package rolled out last year to assist producers of agricultural goods including soybeans, the US’s major agricultural export.

India, the next market frontier for China?

China was the US’s third largest export market in 2018 totalling $179 billion, while imports totalled nearly US$558 billion , according to data of the US Trade Representative. As China diverts from the US, it reinvigorates its trade relations with other countries.

India, a key trading partner for China is expected to reap an enhanced agricultural trade with the latter amid the war trade.  For one, India is an adequate source for China for important agricultural produce such as soybean meal, grapes and tobacco, although, paling in comparison with the US, given the former’s  higher priced farming products.

Furthermore, India is deemed to become China’s next important consumer of its rubber goods, In light of dwindling access into the US. For this reason,  India’s rubber goods industry is reportedly wary of a surge rubber goods coming in from China, according to Rajiv Budhraja, Director General of the Automotive Tyre Manufacturers’ Association.

The country’s antidumping duty policies against truck and bus tyres can only do so much in protecting the tyre industry, the organisation chief implied. Even though India raised levies on radial car tyres from China from 10% to 15%, Chinese tyres manage to flux India through Chinese tyre manufacturing plants based in Thailand.

The non-tyre sector is also guarded on the prospect of increasing imports of  cheaper but lower quality rubber goods in the domestic market, which would put more pressure on the local industry to compete, Vikram Makkar, President of the All India Rubber Industries Association, reportedly commented. He added that rubber products including belts, hoses and other components used in auto, infrastructure,  white goods, and other segments could be affected.

India may benefit from the market dent created by the US-China trade war, but in the long haul, the loss could outweigh the gain, according to observers.  Makkar said that increased imports from China could have negative effect for the majority of the industry.

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