Trade with china

Trade with China
International Relations

1. The Galwan standoff has raised the demand from Indians to boycott Chinese goods including Chinese items in Indian restaurants.

2. But banning trade with China abruptly is not a good approach.

A. Trade deficits

1. India has a huge trade deficit with China, but this does not mean that the Indian economy is weaker.

2. At the same time, India has a trade surplus with the US, UK. This does not imply India’s economy is stronger.

3. Trade deficits imply that India is not capable of producing the needs of its people efficiently.

4. Running huge trade deficits could be a problem if a country does not have enough forex reserves to import the goods. But India has $500 billions in its forex reserves.

B. Indian producers and exporters

1. Indian producers import a huge proportion of intermediate goods such as electrical machinery, fertilizers, organic chemicals etc.

2. These imports become part of final goods that are used by India or exported.

3. A blanket ban on imports will hurt these Industries that are already affected by the slump in the economy due to COVID-19.

C. Policy Credibility

1. Imposing huge duties on imports from China or a blanket ban will lead to policy uncertainty.

2. Investors look for policy predictability and credibility in the investing country. So, this could impact India’s ability to attract new Investors.

D. impact on China

1. While China’s imports from and exports to India constitute only 1% and 3% in its total trade, India’s imports from and exports to China constitute 14% and 5% respectively.

2. So, India will be more affected as it would lose 14% of imports and 5% of exports to China, and increases the prices of final goods in India.

3. Imposing a blanket ban could create more problems in India, as India is currently experiencing slow growth rate.

4. India needs to aggressively increase its share in global trade by becoming more competitive.