Why India can’t afford to impose trade ban against China?

Trade ban will affect India itself more than China

After the deadly brawl at the Ladakh border with the Chinese troops where 20 soldiers were killed in action, Anti-China sentiments in India are at an all-time high. Videos are doing rounds in which people are breaking and burning their fully-functional Chinese appliances. Also, people are asking the government to cut all its ties with China and impose a trade ban against China. Let’s understand if it is practical for India to impose a trade ban or boycott Chinese goods.

As per the recent data, India has a trade deficit of almost $50 Billion against China. People think that it is a bad thing. But, the trade deficit/surplus is just an accounting exercise. Having a trade deficit against a specific country doesn’t make the domestic economy weaker. For example, India has a trade surplus with the US and the UK but our economy isn’t stronger or better than these two countries. Trade deficit only means that India buys more products from China than they buy from India.

Read more: 8 products and services that you didn’t know are Chinese or have Chinese investments

Trade ban will hurt the poor most

If India suspends all its trade with China then it is going to hurt the poor most. Currently, if a poor person has to buy a phone, he/she can invest Rs 7,000 to Rs 8,000 to buy a decent Chinese smartphone. But, if Chinese phones are not available in the market, that poor person will have to either invest more money or buy a less efficient phone. A rich person can easily afford to buy other expensive brands but the poor person will suffer.

India doesn’t only import final goods but also import raw materials which are used in the manufacturing of the final products. These final products are then sold internally or exported to other countries. Raw materials that we import include electrical machinery, fertilizers, nuclear reactors and more. If we stop the trade then these producers or exporters won’t be able to produce the final product.

#BoycottChineseProducts has been amongst the top Twitter trends in the past week. But if we boycott the Chinese products, then we will not just hurt the Chinese company but the Indian retailers as well who are selling Chinese products. They might lose their source of income.

china india trade ban

Trade ban will affect India more than China

China accounts for 14 per cent of India’s imports and 5 per cent of India’s export. For China, India accounts for 3 per cent of China’s exports and less than 1 per cent of import. If India suspends trade with China then China would lose only 3 per cent of their total export while India will lose 5 per cent of its export and 14 per cent import. Clearly, China is a winner here.

India might also lose policy credibility and foreign investors of other countries might not take an interest in investing in India as we might lose credibility and certainty if policies are changed overnight. If we increase the duty on imports from China suddenly, it won’t be just a violation of the World Trade Organization but also invite the same from China ultimately starting a trade war.

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