Covid-19 and India's trade dependency on China: Should we continue our ties?

The trade and geopolitical engineering of the world is all set to undergo a massive change, if not a transfiguration due to the outbreak of the pandemic. China’s role in delaying the pandemic information to the world has raised consequential anti-China sentiments world-wide.

India’s trade dependence on China is huge. Being one of the leading trade partners of India, China’s share in India’s total export and import are 9% and 18% respectively in 2019-20. The input-output table of India indicates that India tends to export raw material or ingredients to China’s manufacturing sector, and imports more of final products with higher value-added. The principal imports from China are electrical machinery, nuclear reactor, organic chemicals, articles of iron and steel, fertilisers, medical or surgical equipment, and auto components.

International Monetary Fund’s (IMF) monthly data (January 2010 to January 2020) reveals that China’s share in India’s export to the world shows a declining trend from 2010 to 2016 and then, has evidenced a reversal. On the contrary, India’s share in total China’s exports reveals an increasing trend with a blip in 2016. Then, it shows fluctuations during the starting of the trade war between the US and China and the recession in the Rest of World (ROW).

The analysis of above monthly data affirms persistent trade deficit with China. One recent IMF figure reveals that India has a trade deficit of $60 billion after the US, which has a deficit of $300 billion with China in 2019-20. It is the primary reason that India has not signed the RCEP treaty. Now the question is, how do we overcome the situation? What should be India’s move to cut down its trade dependency on China? Are we in a position to take any drastic step towards severing our ties given China’s strategic (political and economic) engagements at various places of the globe? What could be our policy directions?

Addressing all these issues during an ongoing pandemic situation needs a critical lens to see India’s trade dependency on China. There is no quick fix to the affairs. The current pandemic has destabilized China’s supply chain but has not pinned it down. Due to the pandemic hit, the manufacturing activity in China is slackening; countries have realized the need for diversification of risk in their production lines. Countries like Japan have already announced an economic stimulus package of $2.2 billion to diversify their manufacturing and supply chains to newer destinations and helps its manufacturers shift production out of China. To tap this potential, India needs to revisit and strengthen its existing trade negotiation deals with Japan, which was signed in 2011.

To reduce our dependency on China and to make a niche in providing global output and trade products and services to the world, India currently requires to impart a calibrated move in designing medium-term and long-term policies. The challenges are primarily domestic, as in, up-scaling technology, infrastructure, etc., and reorienting policies by bringing global order in place by strengthening multilateral institutions to confront the strategic Chinese economic and political interventions and policies during and post Covid-19 era.

Overhauling of Foreign Trade Policy is the need of the hour to promote trade based on comparative advantage. The shift in comparative advantage can come from investing in ports and roads infrastructure, telecommunications, value chains, 4IR (Fourth industrial revolution) technologies, ICT reach, e-governance, telemedicine, etc.

Industrial sectoral dynamics are extremely heterogeneous. We need to identify the sectors for which the spillover effects of such investments will be greater. For example, pharmaceuticals, healthcare sectors are two very potential sectors, where such efficacy can be achieved. We are the global pharmacy of the world, and we require ingredients from China. Also, Trade-Related Intellectual Property Rights flexibilities of the WTO need to ensure that medicines are available and accessible to all during this pandemic outbreak.

Further, steering the use of anti-dumping, countervailing duties (CVDs), safeguard duties, and non-tariff measures like Rules of Origin, Sanitary and Phytosanitary Measures, and Technical Barriers to Trade would be instrumental in short term to tackle our trade deficit with China.

We are in the midst of health and economic crises. Crises though brings opportunities as well. We should harness it better than China by increasing fiscal and monetary measures to increase effective demand, and supply capacities. This can be done by relocating production to rural areas with focus on training of manpower for ensuring lives and livelihood for all.

China has established its supremacy in providing global output and trade over time by bringing reforms as early as 1978 through upscaling rural productivity and employment, focusing on promoting ICT technologies, outward foreign investments in telecommunications, ports and road infrastructure like one belt and one road initiative (OBOR), harbouring global value chains, and by covertly providing heavy subsidies to their manufacturing sector. Thus, it is hardly going to impact China, even if we feel to severe our ties. Hence, continuing ties with China will be the right move given its strategic interventions in Ladakh, South China sea, Hong Kong, Taiwan, among its other strategic and economic policies adopted during the last forty years.

(Authors are Trade Economists and associated with Indian Institute of Technology, Kanpur and BML Munjal University, Haryana. Dr. SK Mathur is Professor in Indian Institute of Technology Kanpur, Dr Anusree Paul is Associate Professor in BML Munjal University Views are authors’ own.)

Covid-19 and India's trade dependency on China: Should we continue our ties? Covid-19 and India's trade dependency on China: Should we continue our ties? Reviewed by TechCO on 1/12/2021 Rating: 5

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