Indian Textile Companies To Benefit From U.S.-China Trade War

The simmering trade war between the U.S. and China is expected to throw open fresh opportunities for the Indian textile industry. The U.S. recently issued a Withhold Release Order on cotton and apparel imports from specific producers in the Xinjiang Uygur Autonomous Region which may escalate global trade tensions.

The U.S. imported $7.35 billion of apparel products from China during January-July 2020, while China exported around 20% of its overall apparel exports to the U.S. in the first quarter of this fiscal, said an India Ratings and Research report.

On the other hand, China depends on the U.S. for raw cotton. China may retaliate by cutting down on cotton procurement from the U.S., leading to favourable supplies from Brazil and India, both of which are likely to have high inventories. While demand from the U.S. could impact the overall cotton demand in China, the value-addition could gradually move out of China to other geographies.

Competition

Indian yarn companies’ dependence on China had reduced to about 20% in the June quarter due to growing competition from Vietnam and Pakistan. India Ratings and Research believe Pakistan and Brazil have a pole position compared with India due to their preferential status. India’s cotton yarn exports declined 28% y-o-y in FY20 to ₹19,600 crore due to a 53% fall in demand from China.

Moreover, the severing of ties by global retail brands such as H&M and Lacoste with China on account of labour issues, along with the ongoing U.S.-China trade war, has benefited Indian ready-made garments exporters in the form of additional orders. The agency believes that the vacuum space created would be positive for Indian garment exporters and help them tide over the impact of the pandemic. Furthermore, the home textile segment has reported increased inquiries from the U.S. for sourcing diversification.

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