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Impact of the Trade War on India’s Chemical Industry

Vandita Jadeja

8/27/2018

The impact of trade war between China and the United States is not restricted to the two countries only. It has spread across the globe and impacts every country that has business relations with China and the USA. The potential lowering of import tariffs by China for Indian chemicals is a very positive sign for the industry. The key reasons behind this scenario are value added chemicals, supply side reforms and strategic inter­est of the Chinese industry. China is the largest importer of products from India and is one of the top three export desti­nations for the country. In 2018, India witnessed a trade deficit of $162 bil­lion and 39 percent was on account of China. However, this share was as high as 47 percent in 2017. India has been constantly asking China to open up the market for other Indian products like pharmaceuticals and IT.
 
China announced that it will cut the im­port tariffs on goods from India and cer­tain Asia Pacific countries. These goods include textile, medical equipments, aluminum products, steel, chemicals and agricultural products. China has currently targeted some commodities that are imported to the US to ratchet up the trade war. It has imposed duties on these goods which are important as inputs for various industries hence this indirectly aids in enforcing the supply side reforms by import substitution.
 
India exports p-Xylene, o-Xylene, eth­ylene glycol, benzene, dyes and pig­ments and linear low density polyeth­ylene in major quantities to China. A lower tariff on these chemicals will increase India’s share of the Chinese import market. In India, Reliance In­dustries will benefit the most as it is the biggest manufacturer with more than 60 percent of the total domestic capac­ity. There are many upcoming projects which are expected to meet the demand.
 
In 2017, India’s export of o-Xylene stood at INR 601 crore and import of phthalic anhydride at INR 276 crore. There are many other chemicals like epoxy resins that are derived from the basic chemi­cals sourced from the country but are not facing anti-dumping duty since they are imported to India.
 
The trade war has sparked a ray of hope for Indian exports like soya bean, cotton and maize to China. It is expected that the exports will increase in the coming period. China has imposed a 25% tax on US imports of cotton and the ship­ments from India are expected to see a rise this year. India’s major exports to China include slag and ash, ores, cotton, mineral fuels, organic chemicals, copper and its articles. India’s imports include electronic components, telecom instru­ments, computer hardware, organic chemicals, electronic instruments, plas­tic and plastic items.
 
 

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