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Friday, April 16, 2021

Can India afford a trade war with China at this point?

The India-China dispute as riled up Indians at a time when the whole world is fighting a virus that is affecting millions every day. While the Indian soldiers lay martyred at the border, civilians were angry and vowed to boycott Chinese products altogether. What started as a border dispute, now became a trade war. But the question is can India afford a trade war with China at this point?

Everyone from political leaders to your next-door neighbour is against Chinese products now. Their anger might not be misplaced but can we afford to remove any Chinese influence from our lives — apparently no. One Plus released its latest model One Plus8 last week and it sold out like hotcakes. One Plus is a Chinese company — so is Xiaomi, Oppo, Vivo, Club Factory, Aliexpress, Shein, Tik Tok, WeChat and many more. But the larger question is will India be able to pull off a trade war with China, who is dubbed to be the next superpower?


Will a trade war hurt us?

India might not be the country China is importing to the most but we are definitely importing a lot of goods from China. Thus India’s trade deficit is quite high with China — this means that India imports more goods from China than it exports. The trade is at equilibrium and if we disturb it by boycotting Chinese products, it will affect the efficiency of the system — Indian consumers and Chinese producers were both gaining from this trade and with that gone both will be worse-off. Which means the aam aadmi will be worse off. If India and China stop trading now — on the face of it — China would lose only 3% of its composite exports and even less than 1% of what it imports, but, if India does the same, it will lose 5% of its exports and 14% imports.


Will it help India’s domestic production?

While India should obviously, like other countries, try to make goods inside India, it is not possible to achieve that to 100 per cent. One nation cannot provide everything efficiently. That’s why the concept of trade had come in. If one individual or nation does not have the provision to or cannot produce some of the goods that they need, they trade. This helps a country focus on its strengths while providing for all their needs. being self-sufficient or producing more goods indigenously id a good idea but that cannot happen drastically or without a plan. It has to be gradual and the production has to be as good and as efficient along with being as cheap as the imported product. India has not yet succeeded that in anything but the recent health care equipment like PPE and make that were made in India.


Will it hurt us directly?

A trade ban can affect everyone from the consumers to the retailers. While consumers may lose out on the products which were cheaper than the Indian and products, they will also have to stop using some products which are not at all produced in India because it would take time to set up the infrastructure and start production. The wholesalers and retailers will be hurt too as they will not be able to avail these products and lose out on its sale. A ban would also mean that the products that are already stocked will not be sold so the businesses will suffer a loss on that front as well.


Will our producers benefit?

While it might seem that our producers will have more opportunity to produce and cater to a larger market in the absence of Chinese products flooding the market. The reality is far from that. A lot of Indian businesses depend on China for their basic equipment and raw materials to make their finished product and that right be anything from a small part to the biggest of machines. But putting a ban on all Chinese items will not only affect the producers but might stall production and eventually affect the economy adversely. Moreover, producers can’t just start manufacturing out of thin air. They would need infrastructure, capital investment on that and on the machinery, and the appropriate amount of about to start the production and this takes years.

Can India afford a trade war with China?
Vivo is a Chinese technology company owned by BBK Electronics that designs and manufactures smartphones and smartphone accessories in China (shutterstock.com/Hendrick Wu)


In the past 20 years, Chinese investment in India has been increasing steadily. The number of Chinese companies investing in our country increased from 21 in the year 2010 to 48 in 2019, according to a report by fDimarkets.com, which typically tracks cross-border FDI investments. About 225 China-based companies have invested in India between the years 2003 and 2020. The Chinese telecom industry, in particular, has a significant presence in the country. Huawei and Xiaomi currently have the highest number of projects operating in here, at a whopping number of 13 each. ZTE and Vivo each also have five ongoing projects.

Even though these investments can affect the Indian economy and its middle class adversely, the public is up in arms and ready to ban and boycott Chinese products following the brutal clash in Ladakh. According to a survey by LocalCircles, an online community platform, spread across 235 districts, 87 per cent of the participants said yes to the question ‘Would you boycott Chinese goods for the next one year?’ When the respondents were asked whether they are willing to boycott buying/using products & services of Chinese companies like Xiaomi, One Plus, Oppo, Vivo, Club Factory, Shein, Aliexpress, Tik Tok, WeChat and a lot more effective immediately — more than half i.e. 58 per cent of those surveyed said ‘yes, won’t buy from now’, while 39 per cent said ‘yes, won’t buy from now but have to use what I have already purchased’.

The future of trade between the two countries will depend on diplomatic relations and how the two heads of state decide to take this forward — which only time will tell.

Note: “Chinese aggression may have got brutal now, but I have been observing their aggression for decades. I started this series because our pasture lands and our shepherds are suffering as they are finding it difficult to raise their Pashmina Goats. China is using border aggression in India to divert attention from its burning domestic issues in Taiwan. I decided that the response to China cannot be military alone, we need to respond with our wallets as well,” Sonam Wangchuk told ThePrint after the clash in Ladakh.
“Boycotting Chinese products is a small step but you don’t stop a journey just because it’s too long. It’s better now than never. Sixty per cent trade deficit is a lot, but you have to start somewhere. Beating Chinese products is easy. India can never make cheap low-quality products like China. China’s products are cheap because they violate labour rights, human rights and environmental norms. We need to speak in a language they understand,” he added.

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