US-China trade actions to have significant impact on India

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Published: April 24, 2018 3:20:45 AM

Nearly a month and a half has passed since the announcement of US tariff of 25% on steel and 10% on aluminium.

US-China trade, US China trade inpact on india, india, EU, china, WTO,  Federal Reserve Board of Governors, US gdp, domestic steel producers According to Federal Reserve Board of Governors, US GDP may be hit by a quarter points in the long run by this action and if trade war breaks out, the adverse impact on GDP could be higher.

Nearly a month and a half has passed since the announcement of US tariff of 25% on steel and 10% on aluminium. As anticipated, a trade war has not taken place although a few retaliatory actions (including increasing tariffs) have been taken by China while EU is also thinking on the same lines. Initially, China had announced tariffs on $3 billion worth of US goods following American proposal of restrictions on up to $60 billion of Chinese technology imports violating US IPR. A few weeks earlier, China had proposed tariffs on American soybeans, cotton, cars and 100 other products worth $50 billion imported from US.

Hopefully the situation has not escalated as yet so as to engulf other trading partners across the globe. Meanwhile, US has granted temporary exemption to imports from Australia, Canada, Mexico, Argentina, Brazil, South Korea up to May1 till these countries prove that imports from them in the long run are not damaging the security concerns of US and to work out alternatives other than tariff barriers to resolve the crisis. As a follow up measure, US and South Korea have agreed to restrict imports from North Korea to the extent of 70% of the average imports from them (quota) in last 3 years. India has made a petition to WTO under article 12.3 of the Agreement on Safeguard that US measures have violated the rules. This has been rejected by US that the action does not fall under the ambit of safeguard category. It is understood EU and Russia also hold the view that suitable compensations have to be extended by US to the affected exporting countries as applicable under safeguard rule of WTO.

The US, however, does not rule out a discussion on the subject with affected countries. The recent meeting of Japan with the US has not yielded any solutions despite the fact that imports from Japan for high value steel items are not produced by US mills. This implies that alternatives to trade war are being sought by the US and primarily trade negotiation route is sought by the US to resolve the crisis. In the interim period, the domestic steel prices in the US have seen a rise upfront. HRC price in the US market at $ 811/tonne on March 7 has gone up to $966/tonne on April 20.

The rise in Plates, CRC, Coated products and Rebar during these two dates are: from $911/tonne to $1,058/tonne, from $945/tonne to $1,118/tonne, from $1,008/tonne to $1,226/tonne and from $700/tonne to $764/tonne, respectively. Thus, while the domestic steel producers are thankful to President Trump for this timely action, the various user segments complain of adverse impact on market realisation of their end product prices. Steel used in construction of large commercial and residential structures, bridges, auto, other transport equipment and consumer durables would be costly leading to rise in project costs and may also experience drop in output and export orders.

According to Federal Reserve Board of Governors, US GDP may be hit by a quarter points in the long run by this action and if trade war breaks out, the adverse impact on GDP could be higher. The Dow Jones industrial average slid by 3% in March 2018 following the tariff announcement. Interest rates in US market is steadily going up. The PMI in March 2018 at 55.6 was lower than the forecast. Unemployment rate remained at 4.1%. Even manufacturing productivity came down by 1.65%.

Therefore, President’s announcement have helped the domestic steel producers to raise their prices leading to rise in profitability and employment with marginal rise in capacity utilisation from the current level of 77%. But the various user segments traditionally dependent on imports would suffer in their domestic operations and would also take the heat on exports as the products become uncompetitive in the global market. US steel mills look for Iron Ore supply from Australia and Brazil and the temporary exclusion of these 2 sources from tariff imposition would enable the uninterrupted supply of raw material.

Higher domestic steel production may cut down US exports of metallurgical coal. India is not immediately affected by the US tariff decision as its HRC and CRC including SS flats are facing AD/CVD duties for supply to US market. Steel exports to US by India are merely 3.5% of the country’s total steel exports in FY18, while India imports 3% steel from USA out of total non-alloy steel imports in last year. But US consumes around 31% of the total exports of pipes from India and the tariff imposition would make this market unavailable to India in the current year.

Further, USA exports to India around 13% of total Melting Scrap requirements in FY18. The 25% tariff on imports may not affect the supply of Scrap to India in the current year.  The recent developments in the nature and pattern of global trade in the post tariff imposition by USA begets an implicit concern for India pertaining to diverted exports from USA by China, Russia, Turkey and EU to a market that has grown by a record 7.8% in FY18.

(Views expressed are personal)

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