The global shrimp trade has emerged as an unexpected microcosm of the problems that the looming trade war will cause.
As the world’s two largest economies exchange tit for tat, putting tariffs on key goods, the impact of president Donald Trump’s policies are being felt at the periphery by a commodity not that widely discussed.
Why is the shrimp trade important to consider, some might ask. Because while the theatrical displays of power from both the US and China have grabbed everyone’s attention, proposed anti-dumping duties exemplify the spillover from the battle to other markets, mainly India.
‘With 32% of the US’s imported shrimp coming from India, it is fair to say India’s shrimp industry is more than just small fry,’ said Simon Finch, co-manager of the Ashburton Chindia Equity fund. ‘Just months after the US imported more than 200,000 tonnes of shrimp, Indian fishermen are now being caught up in the trade wars net cast by president Trump.’
The anti-dumping tariffs were maintained at 0.84% last year, which kept shrimp prices low, however, the US Department of Commerce has now set the new duty at 2.34%. In addition, the US has launched a broad complaint against India at the World Trade Organisation (WTO), claiming that a number of export subsidies that are in place for developing countries should no longer be applicable to India.
The total value of Indian exports to the US is $28.3 billion (£20.1 billion), it was claimed that the subsidy programs amount to $7 billion.
Like many others, India will be feeling the impact of US’s increasingly protectionist policies, but the country’s domestically-driven economy and successful reform programs should help it weather the possible storm.
‘Some suggest [the anti-dumping charges] could negatively impact Indian shrimp imports,’ Finch said. ‘Despite this news, Indian exporters do not foresee a dive in deliveries to the US, as the appetite from the US consumer for shrimp continues to grow. India’s fish farms have also implemented vast changes to technology and farming techniques to improve quality and have seen production double in recent years as demand increases.
‘So, although the headlines may suggest choppy waters are ahead for the rapidly expanding Indian shrimp industry, the impact is anticipated to be well buffeted, and president Trump to cast his bait elsewhere.’
On a broader note, Finch added that India’s total exposure to the US market as a share of GDP is just 3% on a gross basis, with a trade surplus equal to just 1% of GDP.
‘Thus the overall impact from the current trade wars narrative will be limited,’ he suggested. However, he added that to discount the indirect consequences of Trump’s protectionist bent would be unwise.
‘History dictates that protectionist policies generally result in damage to the global economy, and as such Indian businesses will be acutely aware of the possible implications to industries such as steel, information technology and healthcare, particularly the generic drug space.’
He pointed out that the fund’s focus remains on those companies that are reaping the benefits of multiple positive factors, such as demographics, urbanisation and government reform.
India can fare well
‘Trump proclaimed that “when a country is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win”,’ said James Sullivan, managing director at MitonOptimal UK.
With the US having operated with a budget deficit with India for several years, he added, it could ‘mark the country out as a potential victim of such protectionist measures’.
While Sullivan highlights that Trump’s primary targets remain China, Europe and Canada, many other nations will be caught up in ‘what is fast becoming something that resembles a cold war’.
In his opinion, ‘the tariffs are likely to reduce imports from global markets, leaving a marginal supply versus demand imbalance, which is likely to lead to a softening of the metals market pricing. This is likely to have consequence that have yet to be factored in to global economic growth’.
He added: ‘On the face of it, India as an economy, being a net importer of commodities, may actually fare quite well, but they do also have a market selling circa $500 million of steel products into the US each year (representing about 2% of the market share). It’s not a vast sum relative to the economy, but it remains a contributing factor to their economic growth.’
With protectionist policies taking centre stage globally, and an unpredictable leader at the helm in the White House, it is important to find themes that will endure, according to Henna Hemnani of Miton’s multi-asset team.
In India, this has translated into focusing on the emerging consumer theme, benefiting from a growing teenage population.
‘We have one agricultural machinery company, Jain Irrigation, in India, as part of the consumer basket. What’s important to note about India is they’re extremely liquid. While we haven’t taken any action now, because we don’t have strong enough data on how the trade war will develop, if something is negative we can liquidate the stocks immediately,’ she added.
Looking more broadly at agriculture, the managers of Miton’s multi-asset range have recently introduced a ‘feeding the world’ theme into portfolios.
‘We found the data behind it very compelling. The world population is growing and you only have a finite amount of resource and land. That’s a really compelling supply and demand dynamic for agricultural commodity producers.
‘Even more compelling, you have really adverse weather conditions. The stocks we think would really benefit from this are fish farming stocks. They are really sustainable agricultural stocks that will do well in this environment.’