India May Have To Open Up Market For US Agri-Commodities
‘Beware the Ides of March’ is a phrase immortalised by William Shakespeare in his classic Julius Caesar. If the Bard of Avon were alive today, he might have said, Beware the Ides of April. A lot has happened in the month of April.
Tariffs, counter-tariffs, retaliatory tariffs, non-tariff barriers, suspension of tariffs, potential supply chain disruptions, inflation, and risk to economic growth—the world is going through it all with consequences unimaginable.
After announcing stiff tariffs, US President Trump has suspended them for 90 days (till early July), but no one knows what’s in store. Of course, there are incipient signs that Trump may soften his stand, especially against China.
The current conditions have turned uncertain, and even somewhat scary. The outlook for the second half of this year is rather hazy at this point in time.
What are the key takeaways from the ongoing tariff tango? The global demand outlook is set to weaken substantially, but not all markets are likely to be affected severely or equally.
Costs for corporates, especially in the US, will move higher due to tariffs on imports. This is likely to create competitive pressures and dislocations in other markets. Also, as corporates face a highly uncertain environment, their investment decisions will be reviewed and possibly put on hold.
How will countries respond? There could be three general approaches to retaliation.
One, direct retaliation, like China has done by imposing tariffs on US-origin goods. China is targeting US-origin agri-commodities, including sorghum, soybeans, pork, beef, chicken, wheat, corn, cotton and so on.
Two, threatened retaliation, as the European Union is proposing; and third, negotiation to avoid retaliation. Japan and Vietnam are examples of this kind.
One can add a fourth category—tactical accommodation. This is what I believe India is doing in its own self-interest.
May and June will be crucial months for retaliation and/or negotiation strategies.
What will be the potential fallout of the tariff war? Tariffs are sure to hit global growth.
In particular, the US GDP growth is set to fall below 2 per cent. There will be substantial slowdown, but no recession likely as of now. Inflation in the US is likely to stay at elevated levels. This would make the Federal Reserve cautious on rate cuts.
Europe is already in a weak spot and is facing its own challenges. China’s growth may fall below 4 per cent, from the target of 5 per cent. This may encourage the Chinese policymakers to announce stimulus packages, while the yuan may depreciate to absorb a part of the tariff shock.
The bioenergy market is operating in this volatile and uncertain scenario. The outlook for bioenergy products (ethanol, biodiesel) points to a challenging period for the rest of 2025, mainly due to comfortable availability.
The current weak energy prices (Brent crude below $65 a barrel) are on expected lines. The global oil market is in surplus, while demand concerns have come to the fore. Weakness in oil prices is likely to continue till the year-end.
Low crude oil prices will exert multiple economic impacts.
Reduce cost of production of agricultural commodities;
Pressure sugar and vegetable oil markets through the biofuel route;
Discretionary blending of biofuels will all but vanish; and
Subsidy for mandatory blending will rise to fiscally uncomfortable levels.
Closer home, the US and India are currently negotiating a Bilateral Trade Agreement (BTA). India runs a $45 billion goods trade surplus with the US. This may embolden the US to arm-twist India by targeting India’s textiles, seafood and gems and jewellery exports. As these are labour-intensive, India can ill afford tariffs and lower exports.
I believe the US will force open India’s agricultural markets by ensuring tariffs are reduced on a range of commodities (lentils and dry fruits, for example) and non-tariff barriers lifted to allow the import of genetically modified crops like soybeans and corn.
There is a strong possibility India may be forced to allow the import of US soybeans, cotton, chicken legs, and animal health products, as well as corn and wheat, whenever needed. Indian business houses have to brace themselves to face competition from US products.
(G. Chandrashekhar is an economist, senior editor and policy commentator specialising in agribusiness and commodity markets. He provides policy inputs for the government. He serves on corporate boards as Independent Director. This article is an excerpt of his speech at the recently held Globoil International Bioenergy Conference in Dubai. Views are personal)
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