Is Trade War with China a good idea for India?
WITS data shows that the export share to China from India in 2018 stood at 5%. Imports, on the other hand, stood at 14.7% making China the largest import partner of India and that too by a big margin as the US occupying the second spot has an import share of 6.3%. For China in the same year, India's import share was around 0.9% and the export share was 3%. The USA occupied the largest export share with 19.2%.
This tells us that Chinese penetration into the Indian market and Indian dependence on Chinese trade is more important for India than it is for China. Trade war with China might backfire and have a bigger negative impact on India than it may have on China. In this aspect, I agree with the views of Dr Panagariya which I read in this article. As is also suggested in the Global Competitiveness Report, the investment might be a key factor at this time for the revival of developing and emerging economies. This article shows that Chinese investments in some of the Indian Unicorns are humungous as well and therefore China is important from financial point of view as well. Rather than following conventional tariff wars, I think its time to play smart games. Instead of using protectionism tariffs aiming at Chinese trade, we should use Chinese trade to flourish and revive our economy. I believe that the Indian economy at the time when its already facing COVID disruptions and stresses in the banking sectors translating into economical slowdown, it is not ready to tackle a war at least on economics with China.
To understand the nature of dependence, I extracted data from WITS and tabularized the name. The table below shows the total value exports and imports of China and India based on their trade with the world (column 2 and 6) and then with each other respectively (column 3 and 7). Then I calculated the fraction of export or import value embedded in the bilateral trade relative to their values in their overall trade (product-wise). The product-categories are top-10 by export or import value.
We can see here that the dependence of India on Chinese imports is huge and so import substitution of such large segment would not be possible in the short run. While for China it would be relatively easier given India captures a very small fraction of the Chinese market. Coming onto exports, halting trade would have some impact on Chinese exports but again apart from Chemical and Intermediate goods the shock would not be so large. On the other hand, Indian export market would suffer relatively larger disruption.
As Dr Panagariya had mentioned in his article, if India even needs to distance from China to some extent then we should focus more on Free Trade Agreements. At present, India has not been able to benefit as much from the FTA's, in which India runs mostly deficits with its major big trade partners. As seen, the USA is China's largest export partner but even then China has been seen to be surviving and even being offensive towards the USA with its own tariffs during the trade war. Thus, comparing with it, India's trade war might end up hurting the Indian economy worse than the counterparts economy.
Having said that I do appreciate and encourage giving a boost to Aatmnirbhar Bharat as I believe it would benefit the Indian economy and trade balance in the long-run and would give India an upper hand by turning the trade-table in the favour of India. At the same time, it will enable Indian firms to grow, become efficient and thus give them the ability to compete with global value chains.
I enjoyed reading this article as well which also does not recommend India to stop trade flow and also raises issues to do the same based on WTO rules.
This tells us that Chinese penetration into the Indian market and Indian dependence on Chinese trade is more important for India than it is for China. Trade war with China might backfire and have a bigger negative impact on India than it may have on China. In this aspect, I agree with the views of Dr Panagariya which I read in this article. As is also suggested in the Global Competitiveness Report, the investment might be a key factor at this time for the revival of developing and emerging economies. This article shows that Chinese investments in some of the Indian Unicorns are humungous as well and therefore China is important from financial point of view as well. Rather than following conventional tariff wars, I think its time to play smart games. Instead of using protectionism tariffs aiming at Chinese trade, we should use Chinese trade to flourish and revive our economy. I believe that the Indian economy at the time when its already facing COVID disruptions and stresses in the banking sectors translating into economical slowdown, it is not ready to tackle a war at least on economics with China.
To understand the nature of dependence, I extracted data from WITS and tabularized the name. The table below shows the total value exports and imports of China and India based on their trade with the world (column 2 and 6) and then with each other respectively (column 3 and 7). Then I calculated the fraction of export or import value embedded in the bilateral trade relative to their values in their overall trade (product-wise). The product-categories are top-10 by export or import value.
We can see here that the dependence of India on Chinese imports is huge and so import substitution of such large segment would not be possible in the short run. While for China it would be relatively easier given India captures a very small fraction of the Chinese market. Coming onto exports, halting trade would have some impact on Chinese exports but again apart from Chemical and Intermediate goods the shock would not be so large. On the other hand, Indian export market would suffer relatively larger disruption.
As Dr Panagariya had mentioned in his article, if India even needs to distance from China to some extent then we should focus more on Free Trade Agreements. At present, India has not been able to benefit as much from the FTA's, in which India runs mostly deficits with its major big trade partners. As seen, the USA is China's largest export partner but even then China has been seen to be surviving and even being offensive towards the USA with its own tariffs during the trade war. Thus, comparing with it, India's trade war might end up hurting the Indian economy worse than the counterparts economy.
Having said that I do appreciate and encourage giving a boost to Aatmnirbhar Bharat as I believe it would benefit the Indian economy and trade balance in the long-run and would give India an upper hand by turning the trade-table in the favour of India. At the same time, it will enable Indian firms to grow, become efficient and thus give them the ability to compete with global value chains.
I enjoyed reading this article as well which also does not recommend India to stop trade flow and also raises issues to do the same based on WTO rules.
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