Tariff Wars Great Opportunity For India’s Exporters, But Can They Match China’s Scale?
Ajay Sahai, director general of the Federation of Indian Export Organisations (FIEO), told The Core that matching China’s scale of exports may be India’s only limit amid this ‘wonderful opportunity’ that the tariff wars have created for India.
As shelves at US retailers Walmart and Target seem to be under the threat of running dry, many interesting buy-sell trends are emerging amidst the tariff war. Chinese sellers seem to be tapping their Indian competitors to help supply to their US retailers. A few Indian companies, as well trade bodies, are reporting such deals under negotiation at the Canton Fair in Guangzhou.
“A lot of Chinese manufacturers, who were exporting to the US so far, are totally outpriced in the market with a 245% duty. They are approaching Indian exporters to supply to their buyer as a kind of goodwill gesture so that they can retain the buyer when the tariff is off,” Ajay Sahai, director general of the Federation of Indian Export Organisations (FIEO), told The Core.
Chinese sellers who do not want to lose their buyers are asking Indian manufacturers to sell desi-made products to their buyers — to tide over the tariff uncertainty. Chinese companies, as well as China-based US companies are known to have approached many Indian manufacturers to fill the gap until tariff uncertainty rests.
Apart from retaining their customers, Chinese suppliers gain commission from such deals. While a few Chinese companies are doing it for commissions of around 3-5%, others are doing it purely for goodwill with their clients. Since China and India compete with each other for similar products, the latter is the obvious choice to send some of their business to.
Not Around The Tariff Wall
The US has slapped India with a 10% base tariff and has paused its proposed 26% tariff, for now. Even if the original tariffs do not change after the pause, it is a great deal of difference from the 245% tariff on certain imports from China, outpricing them in the market.
However, none of these deals are trying to get through the tariff wall, something US president Donald Trump has warned against. These deals negotiated at the Canton Trade fair, which has seen record attendance of over 200,000 international buyers, are not peddling Chinese goods to the US via India.
“I don't think it's getting around the tariff wall. It is not that the Chinese goods with some value addition or without value addition are entering the Indian market for exporting to the US. These are entirely Indian-made products which are being exported only then they are being facilitated by someone in China,” said Sahai.
What Happens After The Pause?
Some of these deals, in the first phase, were across sectors like hand tools, home appliances, and electronics. Later on, it could extend to handicrafts, textiles, footwear, furniture and toys as well, hopes the FIEO.
“This tariff wall has given us, I think, a wonderful opportunity. There were some sectors where we were not competing also. We will be able to take some markets because once you start exporting to a customer and customers start liking your product, customers may not go back to the earlier supplier,” said Sahai who has attended the Canton Fair.
Over time, Sahai hopes that India will be able to convert the commissions now offered, into discounts for the buyers too. None of these deals are expected to bring in only temporary opportunities. Even after the pause or a possible deal between countries, Sahai believes that the new communication line might help Indians bag more lucrative US exporting deals.
“Even if the tariffs are reduced or tariffs are eliminated, they will continue to be strained and therefore they are betting on India. Secondly, I think reciprocal tariffs have now given a lesson particularly to the global companies to have manufacturing across the country. China is, of course, off the radar for them, he adds.
Matching Size & Scale
The only challenge that comes with this opportunity is India’s ability to scale up to the opportunity that might soon come in. China’s manufacturing sector’s size is enormous, caters to a wide variety of products; and also boasts a deep pool of labour, along with the economies of scale it brings to the table.
“The basic question is that probably the flow of order may be a limitation because creating capacity to cater to what China was exporting to the US from India is a little challenging,” Sahai says.
A few suppliers in India, especially in the textile sector, do not share the same optimism. A few reports indicated that the textile sector could have an edge over Bangladesh, China and Vietnam. In a recent interview, GR Senthivel, secretary of the Tiruppur Exporters and Manufacturers Association (TEAMA), categorically said that US suppliers are themselves in uncertainty and not dishing out orders. While he claims they possess the resources to take in extra orders, the reality on ground is a tad different.
“The window is not at all open. All the exporters and manufacturers, and importers are waiting. They are holding the transactions, they are holding the orders, holding the business to wait for the final outcome,” he said. In fact a few buyers are also asking them to absorb a part of the tariff, or provide discounts to keep up with the uncertainty over tariffs and the 90-day pause on them.
Even if the China +1 strategy of global sourcing plays out, India might have competitors like Vietnam, which too developed their manufacturing capabilities. Yet, experts believe that India might be able to have an edge over Vietnam, due to its large consumer market.
Indian manufacturers are now looking at Voluntary Trade Agreements or VTAs, the negotiations for which started before the tariff war. “I am pretty confident that we will be definitely getting the most benefit of the lower tariff through the VTA. It may not conclude before the tariff pause period is over, but at least as a first tranche, we may negotiate so that the goods sector will continue to enjoy the relief which is currently available to all the countries till July 9,” hoped Sahai.
