Improving US-China Trade Relations Posing Threat To Indian Cotton Yarn Exports

The progress in US-China Trade relations is affecting exports of Indian cotton yarn. Recently, Chinese exporters renegotiated orders of Indian cotton yarn worth $400-500 million.

“There have been problems of renegotiation and cancellation of orders by importers of cotton yarn in China,” said an official privy to the development.

Indian exporters said importers, import agents, and Chinese bankers have defaulted, renegotiated confirmed orders or even cancelled shipments and letters of credit on 10-12 contracts without assigning proper reasons.

The US-China tariff war had benefited India. Between June and September 2018, the US announced high customs duties on several Chinese goods and China retaliated by increasing levies on US goods. Consequently, India’s exports to the neighbouring country increased by about 32% to $8.46 billion during the June-November period.

“Earlier, the Chinese had put duties on American cotton so there was pressure to buy from India. Now, the situation has eased so they want to moderate the prices. This is a spillover of US-China trade issues,” the official said.

China may reduce the planned 25% tariff on US cotton by March 1 as the two countries make efforts to resolve their trade war. India exported $892.4 million worth of cotton yarn to China in April-November, up 2.5% from $870.2 million in 2017-18.

“China is slowing and it fears losing competitiveness if the second round of American tariffs, which includes apparel, come into effect from March. They may want to cut down on the inventory,” said another person.

While China is the largest importer of cotton yarn with a share of 46.7% globally, India remains the largest exporter of cotton yarn in the world. According to Ajay Sahai, director general of the Federation of Indian Export Organisations, Chinese importers are anxious because domestic consumption has declined and they are unsure of an agreement with the US.

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