{"id":27995,"date":"2020-06-19T17:36:11","date_gmt":"2020-06-19T12:06:11","guid":{"rendered":"https:\/\/kashmir.today\/?p=27995"},"modified":"2020-06-19T17:36:11","modified_gmt":"2020-06-19T12:06:11","slug":"explained-why-banning-trade-with-china-will-hurt-india-more","status":"publish","type":"post","link":"https:\/\/kashmir.watch\/?p=27995","title":{"rendered":"Explained: Why banning trade with China will hurt India more"},"content":{"rendered":"\n

India-China Border Face-off: Given China\u2019s centrality and India\u2019s insignificant share in global trade, banning trade will barely hurt China while adversely impacting Indian consumers and businesses.<\/em><\/strong><\/p>\n\n\n\n

By: Udit Misra<\/a><\/p>\n\n\n\n

The Indian government has tried to respond to the border dispute with China by training its guns on trade. The idea resonating in Indian streets is that Indians should boycott Chinese goods and thus \u201cteach China a lesson\u201d.<\/p>\n\n\n\n

\"ChinaDemonstrators raise slogans as they burn an effigy depicting Chinese President Xi Jinping during a protest against China, in Kolkata, June 18, 2020. (Reuters Photo: Rupak De Chowdhuri)<\/em><\/p>\n\n\n\n

Visuals of Indians breaking and burning their fully functional Chinese appliances such as TVs have been doing the rounds in social media. Union minister Ramdas Athawale has even demanded a ban on restaurants selling Chinese food even though these would be Indian restaurants, employing Indian chefs and using largely Indian agricultural produce to serve such Chinese dishes.<\/p>\n\n\n\n

\nhttps:\/\/m.youtube.com\/watch?v=b3z6QSQEPpA\n<\/div><\/figure>\n\n\n\n

While one can understand the outrage that Indians feel when they hear about the brutal deaths of their soldiers, turning a border or defence dispute into a trade one is an ill-advised move.<\/p>\n\n\n\n

There are several reasons.<\/p>\n\n\n\n

1. Trade deficits are not necessarily bad<\/strong><\/p>\n\n\n\n

One of the main reasons why banning trade has been the first reaction is the notion that having a trade deficit is somehow a \u201cbad\u201d thing. The fact is altogether different. Trade deficits\/surpluses are just accounting exercises and having a trade deficit against a country doesn\u2019t make the domestic economy weaker or worse off.<\/p>\n\n\n\n

For instance, if one looks at the top 25 countries with whom India trades, it has a trade surplus with the US, the UK and the Netherlands. But that doesn\u2019t mean the Indian economy is stronger or better off than any of these three.<\/p>\n\n\n\n

Similarly, it has a trade deficit with the other 22 of them (including China) \u2014 regardless of their size and geographic location. This list includes France, Germany, Nigeria, South Africa, UAE, Qatar, Russia, South Korea, Japan, Vietnam, Indonesia among others.<\/p>\n\n\n\n

Yet, a trade deficit doesn\u2019t necessarily mean that the Indian economy is worse off than South Africa\u2019s. A trade deficit with China only means that Indians buy more Chinese products than what Chinese from India. But per se that is not a bad thing.<\/p>\n\n\n\n

Why? Because it shows that Indian consumers \u2014 who made these purchase decisions individually and voluntarily \u2014 are now better off than what they would have been had they bought either, say, a Japanese or French or even an Indian alternative.<\/p>\n\n\n\n

Essentially, it shows that Indian consumers, as well as the Chinese producers, gained through trading. It is this very process that generates the gains from trade. Both sides are better off than what they would have been without trade.<\/p>\n\n\n\n

Of course, running persistent trade deficits across all countries raises two main issues.<\/p>\n\n\n\n

One, does a country have the foreign exchange reserves to \u201cbuy\u201d the imports. Today, India has more than\u00a0$500 billion of forex\u00a0\u2014 good enough to cover imports for 12 months.<\/p>\n\n\n\n

Two, it also shows that India is not capable of producing for the needs of its own people in the most efficient manner.<\/p>\n\n\n\n

At one level, no country is self-sufficient and that is why trade is such a fantastic idea. It allows countries to specialise in what they can do most efficiently and export that good while importing whatever some other country does more efficiently.<\/p>\n\n\n\n

So while a persistent trade deficit merits the domestic government \u2014 the Indian government in this case \u2014 to put in place policies and create the infrastructure that raises competitiveness, it should not \u201cforce\u201d or even \u201cnudge\u201d people to move away from trade because doing so will undermine efficiency and come at the cost of the consumer\u2019s benefits.<\/p>\n\n\n\n

\"ChinaA member of National Students\u2019 Union of India (NSUI) holds a placard during a protest against China, in Ahmedabad, June 18, 2020. (Reuters Photo: Amit Dave)<\/em><\/p>\n\n\n\n

2. Will hurt the Indian poor the most<\/strong><\/p>\n\n\n\n

More often than not, the poorest consumers are the worst-hit in a trade ban of this kind because they are the most price-sensitive. For instance, if Chinese ACs were replaced by either costlier Japanese ACs or less efficient Indian ones, richer Indians may still survive this ban \u2014 by buying the costlier option \u2014 but a number of poor, who could have otherwise afforded an AC, would either have to forgo buying one because it is now too costly (say a Japanese or European firm) or suffer (as a consumer) by buying a less efficient Indian one.<\/p>\n\n\n\n

Similarly, the Chinese products that are in India are already paid for. By banning their sale or avoiding them, Indians will be hurting fellow Indian retailers. Again, this hit would be proportionately more on the poorest retailers because of their relative inability to cope with the unexpected losses.<\/p>\n\n\n\n

3. Will punish Indian producers and exporters<\/strong><\/p>\n\n\n\n

Some may argue that trading with China hurts many Indian producers. This is true, but it is also true that trading hurts only the less efficient Indian producers while helping the more efficient Indian producers and businesses.<\/p>\n\n\n\n

It is important to note that the list of Indian consumers of Chinese imports does not comprise just those who consume the final finished good from China; several businesses in India import intermediate goods and raw materials, which, in turn, are used to create final goods \u2014 both for the domestic Indian market as well as the global market (as Indian exports).<\/p>\n\n\n\n

Contrary to popular belief an overwhelming proportion of Chinese imports are in the form of intermediate goods such as electrical machinery, nuclear reactors, fertilisers, optical and photographic measuring equipment organic chemicals etc. Such imports are used to produce final goods which are then either sold in India or exported.<\/p>\n\n\n\n

Decoding LAC Conflict<\/p>\n\n\n\n