From Turmoil to Triumph: India's strategy amidst China-US trade escalations

Fitch Ratings' latest report reveals a concerning picture for China's economic growth amidst escalating trade tensions with the US, expected to significantly impact its export sector. With US tariffs on Chinese imports set to rise to 35 per cent by mid-2025, the repercussions for China's textile industry are profound. This development not only challenges China's dominance but also presents both challenges and opportunities for India's burgeoning textile manufacturers.

China's vulnerabilities and strategic responses

China, renowned as a global textile powerhouse, faces heightened vulnerability due to increased US tariffs. The textile sector, pivotal to China's export revenue, could suffer severe setbacks as trade flows with the US are disrupted. The anticipated response from China includes stimulatory fiscal and monetary policies in 2025, aimed at bolstering production and maintaining competitiveness. However, the long-term outlook remains uncertain, with potential overproduction and job losses looming amidst fluctuating demand and escalating costs.

India's opportunity amidst trade tensions

Amidst the turmoil, India emerges as a promising contender in the global textile and apparel market. As Chinese products become less competitive in the US, Indian manufacturers are well-positioned to capitalize on this gap. The shifting trade dynamics could stimulate foreign investments and boost domestic production, fostering job creation and economic growth in India's textile sector.

Table: India's textile raw materials imports from China

Source: Ministry of Commerce and Industry, Government of India (Illustrative figures based on available trends)

The table illustrates a concerning trend. Despite efforts to reduce dependence, India's imports of key textile raw materials from China have steadily increased over the past few years. This reliance presents a potential challenge as China faces economic headwinds and potential production fluctuations.

In the short term, as China implements stimulatory measures, its textile production might increase, potentially leading to a surplus and lower prices for raw materials. This could temporarily benefit Indian manufacturers by providing access to cheaper inputs and boosting their export competitiveness. However, the long-term impact is less clear. If China's stimulatory efforts prove ineffective or if trade tensions escalate further, it could disrupt the supply chain and lead to price volatility for raw materials. This could negatively impact Indian manufacturers who rely heavily on Chinese imports.

Despite the potential gains, India faces a critical challenge in its reliance on Chinese raw materials. Recent years have seen a steady increase in imports, highlighting vulnerabilities in the supply chain. As China implements stimulatory measures, temporary benefits such as lower input costs may arise, yet sustained volatility and disruptions could pose long-term risks to Indian manufacturers.

Strategies for India's textile industry

To navigate these challenges and leverage opportunities effectively, India must adopt a comprehensive strategy…

Diversification of sourcing: Explore alternative partnerships with countries like Vietnam, Bangladesh, and African nations to reduce dependence on Chinese raw materials.

Boosting domestic production: Invest in enhancing domestic capabilities for raw materials through technology upgrades and supportive policies to ensure self-reliance.

Strategic stockpiling: Consider strategic reserves of essential raw materials to cushion against supply chain disruptions and price fluctuations.

Value addition and innovation: Focus on higher-value textile products and innovation to differentiate from Chinese offerings and cater to niche markets.

Should India ease import policies?

The debate on easing Quality Control Orders (QCOs) for Chinese raw materials remains contentious. Proponents argue that access to cheaper raw materials can enhance export competitiveness and stabilize supply chains amidst rising demand. However, opponents emphasize the importance of nurturing domestic production and maintaining quality standards to safeguard India's textile reputation.

The evolving trade dynamics between the US and China present a complex yet transformative opportunity for India's textile industry. By adopting proactive strategies to mitigate risks and capitalize on emerging opportunities, India can strengthen its position as a formidable player in the global textile landscape.