The trade war between the US and China can open fresh opportunities for the Indian textile industry. As the US 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. According to the India Ratings and Research report: The US imported $7.35 billion of apparel products from China during January-July 2020. China also exported around 20% of its overall apparel exports to the US in the first quarter of this fiscal.

The withhold release order on cotton imports has created tension in the textile industry, as China depends on the US for raw cotton. China may retaliate by cutting down on cotton procurement from the US and looking for supplies from Brazil and India, both of which are likely to have high inventories. While demand from the US could impact the overall cotton demand in China, the value-addition could gradually move out of China to other geographies. The 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, cutting off ties by global retail brands such as H&M and Lacoste with China on account of labor issues, along with the ongoing US-China trade war, have 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.