India’s trade war with China
Politics
Is going Atmanirbhar and banning trade with China a sound economic policy or a just political hogwash? Are we even prepared to go on a trade-war? Do we stand a chance to win?
Here’s a simplified list of pros and cons of slowing trade with China.
Pros
1. Impetus to local industries
From household appliances, to electric meters, to defense equipment, to even everyday use mobile applications, curtailing foreign players will create room for Indian firms to cater to India’s growing demand. For example, Lava and Micromax, have recently gained share in the Indian mobile phone market, at the cost of a 12% Q-o-Q decline of China’s share.
2. Make/Made in India Sentiments
While banning mobile applications doesn’t have any direct monetary impact on the ~$50B worth annual imports from China, it has probably been the most effective move in driving consumer sentiments towardsMade in India products.
Cons
1. Imports from China
China accounts for 14% of Indian imports, the highest share from a single country. India accounts for only 3% of Chinese exports. Clearly, we need them more, and a knee-jerk reaction would hurt us much more.
For Instance:
70% of the pharmaceutical drugs in India are dependent on Chinese exports, 18/30 unicorn start-ups in India are funded by Chinese firms, most OEMs depend on Chinese imports for electrical and industrial equipment.
2. Exports to China
Curtailing imports hurts our $17B exports to China. Diamond traders and jewelers are already facing the brunt of it, as 35% of diamond shipments from India are made to China and Hong Kong. The Covid outbreak has already brought down diamond export by 84% over last year, and the tensions with China are only making things worse.
3. Decreased Competitiveness
Tariffs and quotas decrease the pace of technological advancement, as local firms don’t have to compete against the best in the world. For example, banning Huawei and ZTE from exporting telecom gear to India will force us to buy the same equipment from expensive European vendors like Nokia and Ericsson. We won’t really increase our self-reliance.
Need of the Hour
Clearly, we currently aren’t in a position to start a trade-war with China today, as we stand to lose more in doing so. The need of the hour is to avoid knee-jerk reactions, and rather strategically reduce our dependence on China and gain a better negotiating position for trade deals as well as territorial disputes.
What can we do?
Ban only those Chinese imports for which we already have (or can quickly develop) competitive Indian substitutes.
Capture the next wave of companies exiting China (there will certainly be more).
Be more cautious as consumers, and go for Made in India alternates (even if they are slightly costlier).
Think for a second, before breaking Chinese TV sets.