Indian manufacturers are concerned about becoming sacrificial lambs in the Sino-American trade war.

According to a May 17 report by the South China Morning Post, Indian manufacturers have sounded warnings about an increasing influx of cheap Chinese goods (ranging from yarn, steel to toys and electronics) into their markets. They warned that as Beijing redirects more exports to the US, they would be priced out of their own markets.

Despite last week's agreement between the US and China to significantly reduce tariffs, analysts warned that years of trade tensions between the world's two largest economies have already led to a flood of cheap Chinese goods into India and other markets, making it difficult for local manufacturers to compete.

In early May, the Southern India Spinning Association reported that at least 50 small spinning mills in textile hubs such as Palakkad, Karur, and Tiruppur were facing production slowdowns. Many fear that domestic market prices will continue to be suppressed due to imports of raw materials like yarn from China, further reducing output.

The steel industry is also facing similar challenges. In December 2024, executives from medium and small-sized steel plants, which account for 41% of India's total steel production, revealed that capacity utilization had plummeted by nearly one-third over the past six months.

According to Reuters, these steel mills were forced to scale back operations and consider layoffs because they could not match the average price of $25 to $50 cheaper per ton for Chinese steel.

The roots of this turmoil can be traced back to the Sino-American trade war, which began in 2017 during Donald Trump's first term as president and has continued under his successor, Joe Biden. According to a report released by Nomura Securities in April, by 2024, China's share of U.S. non-oil commodity imports will have fallen nearly 10 percentage points, dropping to 16%.

However, the report found that China's share of global exports remains close to its historical high of around 15%, reflecting Beijing's efforts to redirect surplus trade toward other markets.

"Rather than retreating, China's highly competitive manufacturers have entered new global markets to compensate for lost orders from the U.S.," the report stated.

Despite varying intensities of border tensions between India and China since 2020, trade between the two countries remains strong. In the fiscal year 2024-25, bilateral trade totaled $127.7 billion, with India recording a trade deficit of $99.2 billion. During the same period, China's exports to India increased to $113.5 billion, while India's exports to China fell to $14.3 billion.

Economists said that as Chinese companies seek new export markets, India's reliance on Chinese raw materials and intermediate products may deepen.

Amitendu Palit, senior research fellow at the Institute of South Asian Studies at the National University of Singapore, said that India's concerns about cheap imports from China cover clothing, chemicals, mechanical parts, steel, toys, and other labor-intensive products.

"On the surface, the reason is that high American tariffs and supply chain reorganization will force China to use its excess capacity to dump goods into other markets," he said.

India has warned domestic businesses against helping foreign exporters evade U.S. tariffs. In April, Indian officials said they would establish a monitoring unit to track surges in cheap imports from countries like China. Additionally, India imposed a 12% "safeguard tariff" on certain imported steel to protect domestic steelmakers from low-cost competition.

China attempted to assure India that it was not dumping cheap products into its market and stated that it complies with World Trade Organization rules and is eager to buy more Indian goods.

"We welcome more quality Indian products entering the Chinese market," wrote Xu Feihong, the Chinese ambassador to India, in a commentary published in The Indian Express on April 29.

"We will not engage in market dumping or malicious competition, nor disrupt the industries and economic development of other countries."

Biswajit Dhar, a trade expert at the Delhi-based think tank Centre for Social Development, said that despite Prime Minister Narendra Modi's "Make in India" initiative, India still struggles to promote the growth of its manufacturing sector.

The core of the initiative is a $23 billion Production-Linked Incentive (PLI) program aimed at rewarding manufacturers who meet production targets. However, progress has been slow, with many companies failing to achieve their goals.

As of October 2024, only 37% of the target had been achieved, with participating companies producing goods worth $151.93 billion, according to a March report by Reuters.

"The PLI plan did not kick off as scheduled," Dhar said. "The bigger question is why investors are taking so long to come... Infrastructure in India is still lacking compared to China and Southeast Asia, which undermines its competitiveness."

Although India's manufacturing sector benefits from cheap labor, the country still struggles to attract domestic and international investors into its manufacturing industry. By contrast, India's service sector outperforms manufacturing and attracts substantial foreign investment.

"In manufacturing, we need to reduce our dependence on China, but we haven't found a way out yet," Dhar said.

Although large American companies like Apple have increased their investments in India to diversify supply chains, analysts said this has led to greater reliance on Chinese components, particularly in technology-intensive sectors such as smartphone manufacturing.

"These industries' strong demand for domestic inputs and final products will continue to maintain dependence on Chinese imports," Palit said.

He said that ultimately, increasing imports from China could undermine India's ambition to strengthen supply chains and make the vision of "Made in India" harder to achieve.

Original source: https://www.toutiao.com/article/1832410600618443/

Disclaimer: The article represents the views of the author alone.