Fallout from the U.S.–China trade dispute is being felt in India, with the country recently putting measures in place to blunt an influx of cheap Chinese textile imports that could threaten domestic production.
On Aug. 7, India, the world’s biggest producer of cotton, doubled the import tax on 328 imported textile products to 20 percent—the second such increase in less than a month. In mid-July, India had doubled import duties to 20 percent on more than 50 imported textile products, including fiber, jackets, suits, and carpets.
The duty increases are expected to provide relief to India’s domestic textile industry, which has been hit recently by cheaper imports. India’s total textile imports jumped by 16 percent to a record $7 billion in the fiscal year that ended in March. About $3 billion of that total was from China.
The Indian government didn’t specify which products would be targeted by the most recent increase.
Rising imports drove India’s trade deficit with China in textile products to a record $1.54 billion in the most recent fiscal year. That set off alarms with industry officials—as India had been until recently a net exporter of textile products to China.
The tariff measure is to “shield Indian [textile] manufacturers…from a bitter Sino-U.S. trade war,” according to an Aug. 9 opinion article published on The Tribune, an Indian English-language daily newspaper.
The article pointed out the problem India is facing now: “Blocked by Americans, China may swamp the Indian [textile] market with cheap goods that would destroy the domestic industry.”
The textile industry is vital for India because it is the second largest job provider after agriculture. It also accounts for 15 percent of the country’s total exports, according to the article.
Aside from the new tariff rates, the article called on the Indian government to close a loophole that China has been exploiting. China has bypassed India’s textile duties by exporting goods to Bangladesh, Sri Lanka, and Vietnam first—countries that have free trade agreements (FTAs) with India. In other words, indirectly been exporting to India without paying duties.
“Rules of origin need to be implemented for textile products. Otherwise, Chinese products will land from other countries,” an unnamed Mumbai-based garment exporter told Reuters in an article.
India’s Confederation of Indian Textile Industry (CITI), a trade group, welcomed the new tariff rates. “The decision would help millions of people get employment in the manufacturing sector of the various segments of the entire [textile] value chain,” CITI said in a statement, which was cited in an Aug. 8 article by Indian newspaper The Indian Express.
Sanjay Jain, president of CITI, told Reuters he did not expect China to retaliate in response to the duty increases, as China still has an overall trade surplus with India. Jain predicts India’s textile product imports could fall to $6 billion by the end of fiscal 2019 as a result of the tariff hike.
The most recent 20 percent duty will not be applicable to products sourced from countries that have FTA’s with India, Jain said.
Jain said India’s textile and garment exports may rise 8 percent to $40 billion by the end of fiscal 2019 because of a weak rupee, and the government’s plans to introduce incentives to boost overseas sales.
Reuters contributed to this report.