US-China trade dispute & Indian agriculture exports

Tariff cuts will translate into actual benefits only if Indian agricultural products are able to get market access in China. From the Indian side, the backward linkages need to be strengthened not only to boost the Indian exports, but also to reduce wastage at the farm level.

The US and China, the world’s largest economic powers, have combated in an accelerating trade dispute since first quarters of 2018. This ever-changing story lingers to evolve, with auxiliary tariffs pronounced by the United States in late May 2018. Agricultural trade has gained attention due to this ongoing trade dispute. This trade acrimony between China and the United States may facilitate Indian agricultural exports as China has been the United States’ top agricultural export market outside of North America since 2009 with an annual sale of nearly $20 billion in 2017. In 2017, top U.S. agricultural exports to China included cotton, soybeans, fish, dairy, sorghum, wheat, nuts, pork, meat, fresh fruits and potatoes.

Perceiving the theory of comparative advantage and that China has one-fifth of the world’s population—four times that of the United States—but only one-tenth of the world’s arable land, China primarily exports labor-concentrated manufactured products to the United States (e.g., electronics), and the United States primarily exports land concentrated agricultural commodities to China (e.g., soybeans). While the United States has a large trade deficit with China, it has a trade surplus in agricultural products.

After first move from the USA, China reciprocated the US move by surging tariff rates up to 25 percent on a list of U.S. goods, including pork, fruit and other products, amounting to $3 billion. Exacerbating the situation further, China suspended its obligations to the World Trade Organization (WTO) to reduce tariffs on 120 U.S. goods, including fruit and ethanol. The import duties on those products will be raised by an extra 15 percent. Chinese augmented tariff rates will be acting as a stumbling block thus creating a lucid platform for India to replicate US’s share in Chinese imports of agricultural products. As per the current Indian agricultural export statistics, aforesaid opportunity is prodigious both in terms of value and volume.

To further bolster the wave of optimism, India enjoys competitiveness for those products which USA exports to China. This intensifies the scope of substituting US exports to China. Adding to this, the aforementioned competitiveness of India will be additionally proliferated as from 1^st of July, China plummeted the import tariffs on 8,549 types of goods from India, South Korea, Bangladesh, Laos & Sri Lanka. The goods include chemicals, agricultural & medical products, soybean, clothing, steel & aluminium products. Currently India’s trade deficit with China stands at staggering figure of USD 62.9 Billion, with India’s exports to China moderately standing at USD 13.3 Billion. Juxtaposing this, India had offered to help China meet its demand for soybean and sugar in the wake of Beijing proposing hefty duties on imports of American commodities because of trade tensions with Washington. Combining the scenarios, it can be inferred that in coming couple of years, this whopping trade deficit of India is going to truncate.

Is this optimism real?

According to trade experts, the tariff cut will translate into actual benefits only if Indian exporters are able to get market access in China. Despite the reduction in tariffs ceteris paribus, other problems will continue to derail India’s plans to boost exports to China. Barriers to trade remain high, especially those that are non-tariff in nature. This has been true for the pharmaceutical sector, considered to be one of the most ambitious segments. Since China is a state enterprise-driven economy and most imports continue to be placed by state companies, issues of market access, primarily in agricultural commodities and pharma product will remain perennial.

To realize the perceived opportunity, significant efforts are still required to synergize the exports quality as per the Chinese norms. Mutually India and China decided to reduce India’s trade deficit with China for which it was decided that non-tariff barriers would be identified in specific sectors and removed. Just to elaborate little, Chinese delegation who visits to see Indian labs for phyto-sanitary clearances gives sluggish response. China is one of the largest buyers of non-Basmati rice from Pakistan, but it doesn’t allow such supplies from India. Certain oilseed exports require as many as 11 certificates stating the items are pest-free. Interestingly, 10 of the 11 pests are already present in China. The neighbor has also put restrictions on supplies of Indian buffalo meat, India’s second-largest farm export item, citing foot and mouth disease among cattle in this country. However, China has been the biggest buyer of Indian cotton and yarn for years now, as it needs the raw materials to keep its massive textile and garment industries running.

From the Indian side, the backward linkages need to be strengthened not only to boost the Indian exports, but also to reduce wastage at the farm level. Region and commodity specific package of practices need to be developed and disseminated to the last mile. Farmer awareness is critical to regulate the chemical usage on the farm. It is also important to give delegation of signing authority to more than one person, so that the procedure can be completed at any point in time.