US-China-trade-war Jul2019

Indian Garment Industry and the US-China Trade War - The Product Portfolio Paradox

Can Indian garment exporters capitalize on opportunity arising from US imposition of higher tariffs on Chinese originating goods?

A lot has been discussed lately about the possibility of garment exporting nations like Bangladesh, Vietnam, Indonesia and India to increase their share in US imports in view of Mr. Trump’s keenness to levy higher import duty on garments made in China. The idea stems from the fact that since 2010, share of US garment imports from China has reduced gradually while that from Vietnam, Bangladesh, Indonesia and India has increased.

US-apparel-imports

On paper, higher duties on Chinese garments can eventually throw up an opportunity worth perhaps US$ 10-15 bn. for these nations but a lot will depend on the availability of suppliers who can match the scale, efficiency and cost of Chinese companies. India, though being the second largest manufacturer and having far better resources than others, has registered negligible share growth in US imports between 2010 and 2018. There are many reasons for India’s lackluster performance in US market including a significant mismatch of the product portfolio.

An analysis of China’s top 30 exported garment categories to USA throws up some interesting observations (see table ahead). These categories contribute to approx. 68% of the total US imports in 2018. China had a share of approx. 33% in these categories. In wake of higher duty imposition, China’s exports in these categories stand to be most impacted. If China loses market share, can India be the major gainer in these categories? Looks unlikely in current circumstances!

Let’s understand why?

china-top-30

• There are only 4 categories where India has a double-digit share (Green highlighted rows in table above – 611120, 621143, 620640 and 620630). The total US imports in these 4 categories was approx. US$ 5 bn. and India’s cumulative share was approx. 15% (2018).

• Other than that, there are 4 categories where India’s export is more than US$ 100 mn. though the share is quite less (Dark green highlighted cells – 611020, 620193, 620520 and 610910). The total US imports in these 4 categories was approx. US$ 19 bn. and India’s cumulative share was approx. 5.5% (2018).

• In all the remaining 22 categories, where the total US import was US$ 33 bn. (2018), India is virtually absent.

To summarize, given a chance, India can consolidate its position in a handful of categories that have a limited business size. India’s weak presence in broader cross-section of US imports that include manmade fibre base products, outwear, hosiery items & intimate wear, etc. will prevent it to take a larger share of China’s business.

To make the most of emerging opportunity, Indian garment exporters will have to emulate their Chinese counterparts not only in terms of scale, efficiency and cost but also diversify their product basket to present themselves as a credible replacement to China.

The article has been authored by Varun Vaid, Associate Director.