US tariffs on Indian steel: Limited blow, but dumping fears loom large

While the immediate consequences could include reduced exports and increased costs for American buyers, India’s relatively small share of the US steel market—around $3 billion annually—suggests that the broader impact will be limited.

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Challenges in steel export

“The US tariffs on steel will increase competition and exacerbate oversupply at other steel-producing markets. Indian steel producers will face increased challenges in exporting their products. Over the past 12 months, high steel imports into India have already dampened prices and earnings of steel producers in India," said Hui Ting Sim, assistant vice president at Moody's Ratings.

Alok Sahay, secretary general of the apex industry body Indian Steel Association (ISA), expressing a similar concern, said that India becoming a net importer of steel in 2023-24 is a “warning signal” for the country which strives to become “Atmanirbhar” (self-reliant). A similar move during Trump’s previous tenure triggered a wave of protectionist measures worldwide, negatively impacting Indian steel exports.

Influx of cheap Chinese steel

In response to the US tariffs, the European Union, fearing a flood of diverted Chinese steel, imposed its own restrictions. This, in turn, curtailed India’s steel exports to Europe, leading to an influx of cheap Chinese steel into the Indian market. India's steel imports have been steadily increasing, with official data indicating that finished steel imports grew at a compound annual growth rate (CAGR) of 5.29 per cent from FY20 to FY24. This surge turned India into a net importer of finished steel in FY24. Imports reached 8.3 million tonnes (MT) in FY24, a significant rise from 4.7 MT during Covid-19.

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Until two years ago, South Korea was India's largest steel supplier. However, China took the lead in FY24, exporting 2.6 MT of finished steel to India that year and 1.7 MT in the first seven months of FY25. Vietnam's share in India's finished steel imports has also grown substantially, rising from 1.27 per cent in FY20 to 8.86 per cent in FY24. Meanwhile, though relatively small, Nepal's share has increased from 0.09 per cent in FY20 to 1.44 per cent in FY24.

How will US curbs affect India?

While India is not among the largest suppliers of iron and steel to the US, exporting $4 billion worth of steel and $1.1 billion worth of aluminium in FY23, its vulnerability lies in the broader global trade realignment that follows such tariffs. With markets adjusting to these shifts, India may absorb surplus steel exports from China and other nations, impacting its own domestic steel producers.

The geopolitical dimension of trade tensions cannot be ignored. Trump has previously referred to India as a “tariff king,” and trade disputes have been a recurring theme in India-US relations. Prime Minister Narendra Modi is expected to discuss trade disagreements and explore new agreements to prevent further escalation during his visit to the US on February 12. One of the key areas of negotiation will be measures to avoid a broader trade war while ensuring continued market access for Indian exports.

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Behind India-US trade war

A key factor in trade disputes between India and the US is the tariff structure disparity. The average US tariff rate is just 2.2 per cent. In contrast, India’s average tariff rate stands at 11 per cent, down from 13 per cent, following a reduction announced in the Union Budget on February 1. The gap has been a point of contention in trade negotiations, with the US frequently urging India to lower its import duties further to create a more balanced trade relationship.

From a domestic perspective, Indian steel manufacturers are bracing for increased competition due to rising imports. While India remains the second-largest steel producer globally, its domestic market is increasingly exposed to cheaper alternatives from China, Japan, and other Free Trade Agreement (FTA) countries. Imports from FTA nations now account for nearly 60 per cent of total steel imports into India. The influx of cheaper steel has already started impacting profit margins and threatens to undercut domestic producers if trade policies are not adjusted accordingly.

Increased domestic demand

Despite these challenges, India’s domestic demand cushions against excessive export dependence. The country’s infrastructure and automotive sectors continue to drive steel consumption, mitigating some of the adverse effects of external trade disruptions. However, without appropriate policy interventions, the long-term effects of increased steel imports could weaken the competitiveness of Indian manufacturers.

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The response from Indian steelmakers has been twofold: advocating for higher import duties to curb excessive imports while pushing for market diversification. Companies like Tata Steel and JSW Steel are exploring new markets to reduce reliance on the US and are lobbying for stricter trade measures to protect domestic production. The Indian Steel Association has proposed raising customs duties on steel imports from 7.5 per cent to 15 per cent to shield domestic producers from unfair competition. Additionally, there is a growing call to abolish the lesser duty rule, which restricts the level of countervailing duties India can impose.

Thrust on domestic production, alternative markets

As global trade dynamics shift, the Indian government is also considering an expansion of production-linked incentive (PLI) schemes to boost domestic steel manufacturing. India aims to counteract the impact of rising imports and global trade realignments by incentivising local production and innovation. Furthermore, strengthening trade ties with non-US partners could help Indian steelmakers find alternative markets and reduce their vulnerability to protectionist policies elsewhere.

The broader implications of the US tariffs extend beyond India. In 2019, the top 10 countries supplying steel to the US accounted for 78 per cent of total imports, with Canada, Brazil, and Mexico leading the pack. India’s share remains small, but the cascading effect of protectionist policies elsewhere, particularly in the EU, could indirectly hurt Indian exporters. Additionally, US steel tariffs have historically reduced domestic production capacity and utilisation rates, pushing American manufacturers to lobby for continued trade restrictions to safeguard their interests.

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The global steel market is characterised by overcapacity, with production exceeding demand. This surplus leads to aggressive competition, price pressures, and trade diversions whenever tariffs are imposed. As the world’s largest steel producer, China remains a dominant player capable of underpricing competitors. The US tariffs will likely intensify this trend, pushing surplus Chinese steel into alternative markets like India and further straining domestic producers.