India- China trade wars on the cards? Well researched blog on Indian govt.’s proposed plan to tax 371 Chinese goods

By Siddharth Goenka published on June 19, 2020
DISCLAIMER : Views expressed here are the author's own.

“Trade wars are easy”;Donald J Trump -Yes, trade wars are easy if one country is buying more than it is selling to the other then trade wars are easy to win as is the case with Sino/India trade.

In the 2020’s it is estimated Chinese economy will overtake the US economy thus successive US administrations be it Barak Obama’s administration or now Donald Trump’s administration have sought to contain China. Barak Obama was more subtle in his containment policy, he refused to be part of China’s Belt and road initiative. Donald Trump realizing the speed at which China is moving ahead in its grand global designs has initiated far more aggressive policies such as “America first” and his trade wars with China.

India in today’s context-

In the year 2001 India’s export to China stood at 0.92 billion USD against imports of 1.83 billion USD leading to a trade deficit of 0.92 billion USD. India’s GDP in the year 2001 was roughly 485 bn dollors, trade deficit with China was roughly less than half a percent of our GDP today our GDP stands at roughly 2.93 trillion USD and our exports to China stand at 17 bn USD imports stand at 70 bn USD leading to an overall trade deficit of 53 bn USD hence today our trade deficit with China amounts to roughly 2% of our total GDP.  These numbers point to an unfair and unbalanced trade which if not checked could cause serious complications in our nation’s economy as well as our national security. There are four major concerns with China having such a large trade surplus over India- 1. Such a large trade surplus depresses job creation In India, as we become more and more reliant on Chinese imports rather than creating our own manufacturing infrastructure. 2. China gives massive state subsidies to its industry thereby making manufactured goods from India unviable. This system of economics will cause China a lot of harm in the long run but as of now it has really hampered domestic manufacturing and India’s ability to compete in the world export market.  3. During times of political crisis like now China can use its exports of essential items like export of raw material for basic pharmaceutical products as leverage. 3. There have been many red flags on the quality of Chinese products especially related to their food exports, in the year 2008 it was discovered that babies were fed infant formula produced by Shijiazhuang-based Sanlu Group which was contaminated with melamine leading to many infant babies born with kidney stones deeper investigation revealed many other Chinese companies had done the same. The nature of Communist China is such that the story was killed and did not get as much traction as it should have; in these circumstances importing anything edible from Communist China is very risky.

History of Sino-Indo trade-

Trade between India and China has grown manifold in the last few decades, but this growth of trade has not been favourable for India. India and China entered into a trade agreement which provided them with the status of most favored nation. In the year 1984 it was a different China, China was then led by the more pragmatic Deng Xioping who wanted to integrate his country with the rest of the world and was more accommodative to the needs of other nations as opposed to today’s China which is led by Xi Xingping who is more dogmatic then the previous leaders communist China has had. Hence when there has been a tectonic shift in the way China is perceiving world politics and world order the rules of trade also have to keep pace with these changing realities.

Sino-India trade today-

China’s share in India’s total trade today stands at 11%. Its share of India’s total exports  stand at roughly 4% whereas its share in India’s overall imports stand at 16%. The growth in trade deficit gap for India has widened exponentially over the years.

As opposed to popular opinion in today’s left leaning media majority of the imports into India are not high technology products but are products in which China has a cost advantage due to heavy subsidizing by its government to its companies. The top imports into our country range from machinery items, applicances, plastic products, Iron and steel. All these products already have a manufacturing ecosystem in India but due to unfair trade practices followed by the Chinese government and Chinese companies our domestic manufactures are unable to compete with cheaper imports. India’s exports to China is mostly raw material such as cotton, animal and vegetable fats &oils, iron ore, exports of raw material does not fetch a premium as compared to finished products.

Chinese companies are heavily subsidised by their government, their currency is manipulated by their government to give an unfair advantage to its exports, this also gives them an unfair advantage in terms of economies of scale which leads to dumping of low priced products such as textiles, electronic devices thereby killing Indian units manufacturing similar products. Prime example is our toy industry in the 90’s India had a vibrant toy manufacturing set up now that has more or less vanished and we are totally dependent on Chinese imports for toys.

Summary-

A lot of Indian manufactures have raised concerns about going into a trade war with China citing our dependency on their raw material, there seems to be ignorance with Indian capabilities in shoring up its manufacturing. A prime example of our capabilities is manufacturing of PPE suits during the ongoing COvid-19 crisis, before this crisis started out in India our domestic manufacturing for PPE suits was negligible today we are manufacturing close to 3 lakh unit per day. Similarly if a conducive manufacturing environment is created for manufacturing of top 10 products which we import from China similar results will be achieved. Imports in India will have to be taxed and domestic manufactures will have to be given subsidies in terms of easy access to cheap capital, easier land acquisition policies, joint ventures with foreign companies who bring in best manufacturing technologies and management practices, many Japanese and American companies have shown interest in this regard during the pandemic. Capital also seems to be easily and cheaply accessible today due to RBI’s liberal rates offered to banks but there seems to be an aversion amongst business to access this capital to enhance capacities as stated by SBI chairman Shri Rajnish Kumar “there seems to be risk aversion at the borrowers end” Trade barriers on cheap Chinese imports will activate Indian business in ramping up capacities which will lead to an ‘Atmanirbhar Bharat’

Hence considering the one sided nature of today’s Sino/India engagement; imposition of the curbs Indian government is planning on 371 Chinese goods ( as reported by media) is not all bad for our economy and our place at the world stage, it is in fact a necessary evil.

 

Siddharth Goenka is an ardent Hindu nationalist who has studied at Bishop cotton boys school in bangalore and then at Aston university in Birmingham. He has worked in the field of finance with JM Morgan Stanley in Mumbai, he is an entrepreneur who has nurtured many successful ventures like kesariya restaurants and banquet, A successful dairy and an apparel company, he conceptualised his LPG Mukta gav abhiyaan this abhiyaan helps the farmer become energy independent, he is currently working on natural farming techniques to help farmers grow their produce without usage of chemicals and pesticides, currently co-chair of campus confluence, he is also an office bearer with BJP Karnataka.

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