India should not hesitate to start a trade war with China

Certainly, a trade war with India would not destabilise the Chinese economy in a big way, but it would cause concern to China, writes N.S.Venkataraman for South Asia Monitor

N S Venkataraman Jun 27, 2020
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Whether the Government of India would admit or not, it is crystal clear that India is facing a war-like situation with China. The most important thing that India needs to do now is to convey a firm impression to the Chinese government that India would not buckle under pressure and military threat. Certainly, this is what many countries in the world, who understand the tactics of China and are concerned about it, expect from India today.

Obviously, India has to confront China on several fronts including trade and economic front.  While China has created huge capacities in several industrial and commercial sectors, the fact is that China is excessively dependent on the world market for its industries to operate at the economic capacity utilization level, by marketing their product internationally. This is the area where China has to be confronted. US President Donald Trump has understood this and that is why he initiated the trade war with China, which is getting silent approval from several countries. Very few countries criticise the USA for its trade war moves, which has made the Chinese economy weaker, though not still weak at an alarming level.

It is high time that India too needs to start a trade war with China. While there is a high level of clamour amongst a cross-section of Indians to ban the import of goods and services from China, some experts have been stating that the ban on import of goods from China would paralyse the Indian economy too. This view is certainly not based on facts and not based on a clear understanding of the ground realities in India.

Low prices of Chinese goods 

In the year 2019, China’s exports to India were 68.3 billion USD, while India’s exports to China were much lower level at 17.1 billion USD, largely consisting of minerals and natural products. Of these above exports by China to India, drugs and drug intermediates constitute around 65 percent of the total import of bulk drugs and intermediates by India from various countries. Most of these import of bulk drugs and drug intermediates are avoidable, as India has enough capacity. For example, a number of units in India have capacities for the production of several drugs such as ibuprofen, paracetamol metronidazole, and still India import from China leading to underutilization of capacity in India.

In the same way, India has adequate installed capacity for several chemicals and even such chemicals are being imported from China. Several examples can be readily pointed out. India imports around 100,000 tonne per annum of citric acid from China; India was producing citric acid and then closed its plants due to import dumping from China.Several Indian units such as Hindustan Antibiotics, Torrent Pharmaceuticals and others were producing Penicillin G earlier and all of them have closed operations due to import dumping from China and now India is largely importing from China.

Why is this situation? The reason needs to be understood and tackled.

India is importing several pharmaceuticals and chemicals from China, not due to lack of production capacity or technological capability but Indian buyers are tempted by the offer of low prices from China. Also, China provides liberal credit terms of as much as six months to the Indian buyers from the date of bill of lading.  

The fact is that China is a non-market economy and several hidden subsidies and support is given by the Chinese government to help the Chinese industries to export the products at a low price and there is no transparency in such matters. What is particularly surprising is that several buyers and traders in India succumb to the temptation of buying products from China due to the low price and liberal credit  terms, even if the quality and specification of the Chinese product would be less than that of the product produced in developed countries.

Curbing Chinese imports 

Curbing the import of products from China is now a national necessity to protect India’s interests. There are many non-essential items imported from China such as furniture, bedding, toys, mobile phones, televisions. etc., and which India can do without getting supplies from China.

In the case of chemicals, bulk drugs, auto parts, etc., the capacity utilisation of Indian industries should be improved and production increased by curbing import from China. There are enough capabilities in India with regard to such products. Even in the case of the renewable energy sector, solar cells are imported from China in large quantities, while solar cell producers in India are languishing. 

The government of India should make the price of Chinese goods in India expensive by imposing safeguard duty to protect the Indian industries and national interest.  With such protection, Indian industries will have the opportunity to expand capacities, increase production and optimise production cost, which they are not able to do now as they are unable to operate with confidence due to import dumping from China.  

India has to learn from the strategy of the US president who has imposed tariffs on Chinese products heavily to curb imports from China. China has tried to retaliate by imposing tariffs on US products. In the process, both the countries have not bothered about the regulations of the World Trade Organisation (WTO), and WTO rules have gone with the wind.

India also needs to impose such tariffs on Chinese products without excessively being concerned about WTO rules, which should be relevant only in normal times. China is ostensibly occupying Indian territory and has killed Indian soldiers. In such circumstances, India starting a trade war with China is absolutely appropriate. Even as per the WTO rules, safeguard duty can be imposed on an imported product by any country, if the domestic industry is adversely impacted.

A trade war with India would not destabilise the Chinese economy in a big way, but it would cause concern to China. This would make it clear to China about India’s determination to confront Beijing and would be a trendsetter for several countries that are equally concerned like India about China’s greed, ruthlessness and territorial expansionist policies.

(The writer is a Trustee, NGO Nandini Voice for the Deprived, Chennai. The views expressed are personal. He can be contacted at nsvenkatchennai@gmail.com)

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