Indian agri-exports stand to gain from US-China trade war

Following the war of words, the US-China trade war has only intensified with Beijing slapping import duties on 128 items imported from Washington in the first week of April. The hike was in retaliation to the Trump administration’s move last month to raise tariffs on steel by 25 per cent and aluminium by 10 per cent. Currently, the world’s biggest economies trade in goods of over $600 billion annually, with China enjoying a trade surplus of $350 billion. 

This is something that President Trump had vowed to correct before his election in 2016. But just as he is about to unfold his plans, the Chinese have begun a spectacular counter offensive. The US President is now preparing a new tariff list that will be released this week targeting technology goods from China. Why technology goods? The US president is focusing on technology goods, because during his election campaign, he had vowed to penalise technology imports from China for its failure to stop patent infringement.

The trade war has been simmering for several months and the US is taking all precautions to ensure that its tariffs are not inadmissible under the World Trade Organisation (WTO). On the other hand, China is now throwing caution to the winds and attacking America where it hurts the most – namely farm exports. Does this open up a window of opportunity for Indian agricultural exports? Yes it does.

Pork, nuts, apples and wine have been targeted

Currently as things stand, 90 of the 128 US items, that will now attract increased tariffs while entering China, are farm products. They include fruits from apples to guava, cherries to berries and even mango and pears. They have nuts of all types from dried coconuts to shelled cashews, walnuts, to dried figs. Then there is sparkling wine, wine brewed with fresh grapes and grape juice. All these items have attracted 15 per cent additional duty.

That’s not all. Pork, pork liver and pork chops, on the other hand, will have to face 25 per cent tariff to enter the Chinese market. The Chinese know that the increasing tariffs of farm producers will hurt Trump’s core constituency. Farmers will put pressure on Trump to negotiate. Meanwhile, the demand from China is so humongous that the global commodity markets will be eager to fill in the gap.

Soya beans could be the breakthrough market

Soya is another product where China has created barriers for US farmers. US produces 110 million tons of soybeans annually, two-thirds of which is exported to China. In December 2017, even as the US was planning to take action under section 232 (national security) to raise tariffs on steel and aluminium, China revised its soya import specifications. The new specifications have now mandated that US soy exports will need to reduce foreign material content to 1 per cent to qualify as Grade 1 material. As a result, exports from the US were 14 per cent lower at 5.82 million tonnes in the month of January 2018. The shortfall was made up by Brazil.

China is the biggest importer of soy not only because the Chinese consume it as the poor man’s protein. It is also the world’s biggest food processor where soy is the key ingredient. Whether it is processed meat or kebabs, breakfast cereals or noodles, soya is the essential binder, besides being a low cost protein substitute.  Soya beans, soya sauce, soya cheese or tofu have traditionally found its place in Chinese and Japanese cuisine in noodles, momos, broth, soup or rice dishes.

China also imported 60 per cent of the global soya production of which 50.93 million tonnes came from Brazil and 32.9 million Tonnes were supplied by US in 2017. Both nations supply the genetically modified GM variety of the crop.

Exporting soy, nuts and fruits

This is where India can and should seize its opportunity. China may be the fourth largest producer but on the other hand, it produces a modest 12.2 million tons of soya beans while India produces 10.3 million tons of soya. Both are of the non-GM variety. While the non GM soya is a premium product, the GM variety is cheaper and is largely used in the food processing industry. The US-China trade war and the falling soya exports to China needs to be substituted and provides an entry window to India.

China’s demand is huge especially of farm products which it freely buys from abroad. India could try to step into this market to reduce its trade gap that is increasing every year. Currently, statistics show that India’s trade deficit in 2016-17 was $ 51.08 billion against a total trade of $71.48 billion with China. While it is very difficult to export manufactured goods or technology products to China, exporting food and farm products is fairly simple. Mangoes, apples, guavas, peaches, pears, are fairly uncomplicated to export to China especially because the Indian product is the non-GM variety. The US-China trade war and China’s offensive against US farm products could just provide Indian farmers with such an opportunity.

The author is a senior journalist. Views are personal