By Ira Dugal
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Greetings from Mumbai!
This week on the India File, we focus on soaring imports of Chinese steel into India, which may be a harbinger of things to come in other industries if China is hit with more U.S. tariffs. Could India find itself stuck in the middle of a U.S.-China trade war?
India appoints Sanjay Malhotra as central bank governor, a surprise move that will add uncertainty to the next monetary policy move. Scroll down for more on that.
This week in asia
** With Syria’s Assad gone, his PM agrees to hand power to rebel administration
** South Korea martial law fallout deepens
** BOJ is holding cards close to its chest on December rate hike
** China targets Nvidia with antitrust probe, escalates US chip tensions
Dodging the U.S-China trade crossfire
India’s steel makers are feeling the heat from cheap Chinese imports and have begun clamoring for safeguard tariffs, a sign of what may lie ahead when Donald Trump enters the White House with his promise of steeper tariffs against China and others.
If a trade war breaks out between the U.S and China, India’s two largest trading partners, the collateral damage could spread beyond steel to other sectors including machinery, electronics and chemicals, where China may face additional tariffs, analysts say.
India already imports heavily from China and those imports are rising fast, up 10% at $65.9 billion in the April-October period and pushing the trade deficit with China to $57.8 billion, compared with $51.1 billion a year ago.
Higher U.S. tariffs or other trade barriers could divert even more of China’s surplus goods to India and elsewhere, economists at CRISIL Market Intelligence and Analytics said in a report dated Nov. 28.
India’s steelmaking industry – the world’s second largest – has been hit particularly hard, with Chinese imports climbing 35.5% year-on-year during the first seven months of the financial year, to an all-time high of 1.7 million metric tons.
That has brought down India’s domestic prices, and if they stay low, the country’s goals for boosting steel production capacity by two-thirds by the end of the decade will be adversely affected, India’s federal ministry of steel has said.
In May of this year, the U.S. imposed a 25% tariff on Chinese steel, which according to S&P Global trimmed shipments to the U.S. by 1% between January and September, while shipments to India – especially attractive with its booming demand for construction-grade steel – were surging.
China, the world’s largest steel producer, is grappling with weakening demand in a slowing domestic economy. Demand will likely flatten or dip slightly in 2025, too, worsening its oversupply and likely increasing exports further.
The Indian government has yet to agree to the safeguard duties sought by domestic producers against Chinese steel, although the federal steel ministry is batting for one.
And even if India moves to limit the harm from the U.S-China crossfire, it could end up fighting its own trade battles with the U.S.
“Trump may pressure India to cut tariffs and also impose higher tariffs on Indian goods, especially in sectors like automobiles, textiles, pharmaceuticals, and wines,” wrote Ajay Srivastava, founder of the Global Trade Research Institute.
On the upside, as the U.S. hardens its stance on China, new opportunities may open for Indian exporters to fill gaps left by restrictions on Chinese imports, Srivastava said.
Trump’s latest salvo against India came in a blunt warning to BRICS member countries of retaliation if they moved to replace the dollar as a trading currency. For now, India is deflecting.
“BRICS countries have no interest in weakening the U.S. dollar at all,” Indian Foreign Minister Subrahmanyam Jaishankar said on the sidelines of an event in Doha over the weekend.
What sectors in India could gain or lose as global trade tensions heat up? Write to me with your views at ira.dugal@thomsonreuters.com.
Quote of the week
“Under Mr Das’ leadership, we had forecast that cuts to the repo rate would only begin in April. But given today’s announcement, we are now forecasting the first 25 bp cut at Mr Malhotra’s first meeting in charge in February.”
Shilan Shah, deputy chief economist – emerging markets, Capital Economics.
India has appointed veteran bureaucrat Sanjay Malhotra as the new chief of the Reserve Bank of India. The decision came as a surprise to the markets, which were widely expecting current chief Shaktikanta Das’ tenure to be extended.
Last week, the central bank kept interest rates unchanged as it awaited a clearer outlook on inflation.
“Das was the most hawkish member of the MPC (monetary policy committee),” said Shah, adding that with his exit, the “the balance of views on the MPC is likely to be less hawkish”.
The Indian rupee weakened and bond yields fell as economists said Malhotra’s appointment spurred bets on quicker rate cuts.
Market matters
Foreign investors’ selling of Indian equities slowed in November, when they pulled $2.5 billion from the local share market after record sales of $11.2 billion in October.
Data released by the National Securities Depository last week showed that foreigners bought IT and financial services stocks but continued to sell oil and gas, auto and telecom stocks.
In December so far, foreign investors have turned net buyers, purchasing $2.8 billion in Indian stocks.
(By Ira Dugal; Editing by Edmund Klamann)
