Trump's Steel and Aluminium Import Barriers to Test Modi's Resolve on the Same Front

India's steel and aluminium industry is already reeling from cheaper imports. With America putting up walls, global production will try to find new markets including India.

A worker cuts a steel rod inside a steel factory on the outskirts of Jammu. Credit: Reuters/Mukesh Gupta

New Delhi: India could see a surge in steel and aluminium imports if US President Donald Trump carries out his threat to raise trade barriers to protect his country’s domestic metal industry as surplus global production will try to find new markets.

Trump said on Thursday that he would impose a 25% import tariff on steel and 10% on aluminium to protect US producers, a move that analysts say could trigger a global trade war and hit global economic growth momentum.

Japan, Korea, Vietnam and Russia, which hold significant shares in US steel imports, are likely to find a market for their surplus production in India.

Similarly, China, the UAE and Australia could divert their surplus aluminium output to India.

Indian steel manufacturers were reeling under low domestic demand and cheaper imports from countries like Japan, China and Korea before the government started raising barriers from February 2014. The government was forced to intervene as public sector banks had significant exposures to the steel sector. There was risk of loans becoming duds if imports continued unchecked.

Japan has dragged India to the World Trade Organisation over its steel safeguard duty. Out of fear of retaliation by its trading partners, the government later dismantled most of the measures introduced to check imports.

At Davos recently, Prime Minister Narendra Modi had identified protectionism as a major global problem. If steel exports to India now surge, however, he may be forced to adopt use tariff walls to protect Indian manufacturers. Certainly, that is the expectation Indian industry would have.

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Domestic aluminium manufacturers too have lobbied with the government for protection against cheaper imports.

In September 2015, representatives of the domestic aluminium industry met finance minister Arun Jaitley to seek government intervention and protection from cheaper imports. They complained that domestic manufacturing facilities were operating at half capacities. The meeting came days after the Directorate-General of Safeguards recommended a safeguard duty on flat steel product imports.

Indian industrialists are already calling for similar measures in light of Trump’s decision. In multiple tweets this week, steel baron Sajjan Jindal said that India “needs a level playing field”.

The market share of domestic aluminium manufacturers dropped to 44% in 2014-15 with imports nearly doubling to 15.63 lakh tonne from 8.81 lakh tonne in 2010-11.

Not much impact on exports

However, Indian exporters of steel and aluminium are unlikely to feel a significant impact as the US accounts for only a tiny share of the Indian steel sales globally.

“We have only 2% of our exports to US so no immediate dent, but validity of Section 232 is stretched to be used as tariff barrier,” steel secretary Aruna Sharma said when asked to comment on the US proposal to impose additional duty on steel and aluminium imports.

The major destinations for Indian aluminium exports are Korea and Malaysia, which account for 38% and 14% of India’s total exports. So, India is unlikely to be affected much if the US raises duty on aluminium imports.

On the contrary, Indian companies JSW Steel and Hindalco, which have steel and aluminium manufacturing facilities in the US respectively, stand to benefit from the proposed duty hikes by the US.

Novelis, Hindalco’s overseas arm that has a manufacturing facility  in the US, may see a sharp growth in both revenue and volumes if the US raises import duty on aluminium imports, said analysts.

JSW Steel’s US subsidiary too is likely to benefit if the US implements the proposed duty hike on steel imports.