How Trump's trade war with China impacts Indian chemical exporters
What's the story
The ongoing trade war between the US and China, which intensified after President Donald Trump imposed 20% tariffs on all Chinese imports, is affecting several sectors in India.
One such sector that is bearing the brunt is the chemical industry.
Experts believe that these tariffs could result in an influx of cheaper Chinese chemicals into other markets, thereby increasing competition for Indian chemical exporters.
Export statistics
US is India's largest importer of chemicals
In FY 2023-24, the US became India's biggest chemical importer, with imports worth $2.9 billion.
This constituted nearly 14% of India's total chemical exports worth $20.4 billion during the period, according to Chemexcil (Basic Chemicals, Cosmetics & Dyes Export Promotion Council) data.
Brazil, the Netherlands, Saudi Arabia, Indonesia, the UAE, Japan, Germany, and China were among other major importers.
Market shift
Chinese companies may target non-US markets
Swarnendu Bhushan, co-head of research at PL Capital, a broking and trading firm, predicts Chinese companies won't cut their production capacities.
"To keep their practice running they will keep on churning their products. And if they can't sell in the US, they will sell in non-US markets," he said.
This could potentially up the ante for Indian chemical exporters in these non-US regions.
Price impact
Tariffs could lead to price inflation
Analysts from Kotak Institutional Securities have proposed that while the US tariffs on China may benefit some Indian companies by leveling the playing field, it could also result in price inflation and subsequent price wars in other regions.
Aarti Industries, India's leading chemical exporter, exported 24% of its products to the US in FY24.
Other major exporters like Vinati Organics Ltd and Navin Fluorine International Ltd also had significant exports to the US.
Profitability concerns
Potential reciprocal tariffs could impact profitability
The threat of reciprocal tariffs by the US could also endanger Indian chemical companies.
According to Kotak analysts, the US could increase import tariffs on these products by 600 basis points on the basis of reciprocity principle espoused by the Trump administration.
This could hurt Indian chemical companies with high exposure to the US market, such as PI Industries Ltd and Vinati Organics.