Steel Magnolias: US trade tariffs on steel and impact on India

By Bornali Bhandari

Last month the United States President Donald Tump imposed 25% tariffs on steel imports into the county, citing concerns about the dumping of cheap imported steel ruining American industries and taking away jobs. Given the trade relations between the US and India, it is important to examine what these tariffs will mean for the Indian steel industry.

Growth trends of Indian steel

The Indian steel sector continues to struggle to post the financial crisis period. As per data collected for the Report of the Working Group on Steel Industry for the Twelfth Five Year Plan (2012–2017) the total production of finished steel in the decade preceding deregulation (1982–83 to 1991–92) ranged between 8.5 and 14.2 million tonnes showing a compound annual growth (CAGR) of 5.9%. In the post-deregulation period (1992–93 to 2010–11), the steel sector production of finished steel ranged between 16.9 and 66.01 million tonnes, showing a CAGR of 8.4%.

Using the steel production numbers from the Index of Industrial Production (IIP), one can see that the steel sector has shown weak and falling growth post-2011 and 2012 (Figure 1). In fact, in 2015–16 the growth rate of the industry was -1.3%

Aided by the imposition of anti-dumping duties on imports of various steel products from various countries including China, South Korea, European Union, South Africa, Taiwan, Thailand and the United States the sector has shown signs of recovery in 2016-17.

Steel production has shown a year-on-year (y-o-y) growth of 6.4% for the April–January 2017–18 period. However, when we analyse month-wise data, we observe volatile growth patterns. Over 80% of all Indian steel production is domestically consumed.

 

Note: CAGR is shown for the periods 1981-82 to 1991-92 and 1992-93 to 2011-12.
Sources: Report of the Working Group on Steel Industry for the Twelfth Five Year Plan (2012–2017) and Office of Economic Advisor.

Exports of Indian steel

As per the report, export of steel reached a peak high of 5.24 million tonnes at the end of Tenth Five Year Plan in 2007. For the eleventh plan (2007-2012), export of steel slowed down and recorded negative annual growth rate of nine percent from 5.08 million tonnes in 2007-08 to 3.46 million tonnes in 2010-11.

Exports of Indian finished steel have soared from 3.8 million tonnes in 2014-15 to 8.2 million tonnes in 2016-17. Figures for 2017-18 promise to be even higher as for April-February 2017-18, exports were 8.911 million tonnes, exhibiting a growth of 34.6% on a y-o-y basis. Since 2016-17,  India has become a net exporter of steel.

Total Indian exports of iron and steel (HS code 72) increased from 10,711 million tons in 2016 to 17,476 in 2017, exhibiting a growth of 63.2% (Ministry of Commerce). Exports to the United States for the corresponding period of the same product increased by 47.5% from 266 to 392 million tons. Similarly,  exports to the US for iron and steel articles (HS code 73)increased from 494 million tons in 2016 to 958 million tons in 2017, showing a whopping increase of 94%

India is the eleventh largest exporter of steel to the USA in terms of volume, which has shown a triple-digit rise in 2017. Specifically, India is one of the top five exporters of ‘pipe and tube’ and stainless steel to the United States.

How will the tariffs affect India?

Although their impact will be limited, the tariffs will cause a setback to the Indian Steel Policy. If India is to achieve its National Steel Policy target “to have a wider presence globally in value added/ high grade steel”, the tariffs will act as barriers to the US markets act and restrain growth in an industry that is still recovering.

The tariffs also threaten to set back the government’s ‘Make in India’ program, although the government did use the same “infant industry” argument to protect some of its manufacturing industries in the current budget. This further limits the government’s power and capability to negotiate the tariffs with the United States. However, with the looming threat of a global trade war, the more concerning matter at hand is to see whether the imposition of tariffs by the US will penetrate into other industries, as Indian markets for services are much more vulnerable than the steel industry.

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Bornali Bhandari is a Fellow at NCAER with a background in international economics and focuses on the impact of globalisation on development.