Auto parts, leather sectors see opportunities in US-China trade war, but challenges exist

M. Ramesh Chennai | Updated on August 28, 2019

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The news just got better.The US, miffed at China’s retaliatory tariffs on $75 billion worth of US exports to the country, last week counter-retaliated by raising tariff by 5 percentage points more.

What used to be 25 per cent on some products — like auto components — will henceforth be 30 per cent. Wonderful! This is not just schadenfreude at the discomfiture of a country that is not exactly a friend — because, for India, it is a lip-smacking opportunity But is India benefiting?

China has let its currency slide 12 per cent, which takes off the sheen a bit, but there is still some headroom in the US tariffs. The rupee is depreciating too, albeit not as much as China’s yuan. There is a net advantage for a country smart enough to move in and seize the business.

But it is too early to see any gain, as Commerce Minister, Piyush Goyal, told Parliament on July 10. While acknowledging a “window of opportunity”, the exact impact, he said, “may not be discernible at this point of time.”

Two industries that BusinessLine spoke to, said there are business opportunities discernible on the horizon — but there’s a flipside too.

The auto components industry is seeing, “enhanced enquiry flow”, according to Ram Venkataramani, President, Automotive Components Manufacturers Association (ACMA), whose 800-odd members represent 85 per cent of the industry.

In 2018-19, the auto components industry saw a 12.5 per cent rise in exports, to $15.6 billion — but no surge to the US.

Last October, Venkataramani had told BusinessLine that some US manufacturers had begun to show interest in India. But his language now is slightly sharper. “What we gather from our members is that there are lots of enquiries.”

His biggest concern is that the Indian trade negotiators should not gift away this opportunity.

More business seen

Vidyashankar Krishnan, Vice-Chairman and Managing Director of MM Forgings, a ₹950-crore supplier of forged products to vehicles that gets half its business from abroad, is upbeat.

“We are seeing more business,” Krishnan told this newspaper. The company, he said, has an opportunity to sell to a US buyer who is a “shift from China”.

The leather industry is also sensing big opportunities, according to PR Aqeel Ahmed, Chairman of the Council for Leather Exports. The US, he says, “has started placing orders”, but — unlike the auto components industry which, today has spare capacity — the leather industry is pretty short on manufacturing facilities to take the big orders that come from US customers. The Indian footwear industry has another issue too — the Chinese supply a lot of synthetic footwear, the Indian industry is mostly of leather.

To set up fresh manufacturing capacities “capital is the main issue,” says Ahmed. The answer is foreign investment. The Council is working with India Invest, the government-sponsored foreign investment facilitation company, to get foreign companies build factories in India. Talks are on with seven countries, including China.

If the Chinese are yielding space for India to move in, they are also grabbing India’s space elsewhere — in Europe, for instance.

Aggressive China

Chinese companies have become very aggressive, says Venkataramani, out of personal experience. A Chinese competitor snatched an European order from the very fingertips of India Pistons Ltd, a company in which Venkataramani is a Director.

And the Chinese are coming into India too. India imported $17.6 billion worth of auto components last year, and China was the biggest source, even though there is no Chinese vehicle manufacturer in India.

This means that the Chinese products are going into the price-sensitive Indian replacement market. “They will dump,” says Venkataramani.

Published on August 28, 2019

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