11 Reasons Why "Boycott China" Will Harm India More Than China

(Source: The Economic Times)

Ever since the Galwan incident occurred in Ladakh a few days ago, the #BoycottChina movement has been trending everywhere on social media. But this movement is actually a lot older than just a couple weeks. The movement has been popularized from May, when border tensions with China first came into limelight. And Indians on Twitter went crazy with tweets on boycotting China.

From blaming Nehru again to tweeting with #HindiCheeniByeBye, Indian news channels, as always, fanned the fire. We’re even considering the boycott of Momos and Manchurians now. But, is a trade boycott really feasible? Will it make much of a difference to the Chinese economy?

Here are 11 reasons why the boycott will do more harm to India than it will to China:

Chinese Goods are More Efficient and Better

(Source: Financial Times)

Let’s face it: the only reason people prefer Chinese goods are because of their higher degree of reliability and lower prices. Under a globalized economy, consumers have a wide range of options to choose from, and inevitably they will choose whatever offers them the best utility as compared to the price. Currently, demand patterns show that this happens to be China, and that is why people all over the world have been flocking towards Chinese products.

Therefore, at this point, if governments force people to not buy Chinese goods, they’re basically telling people to buy sub-par goods, which is not something that the public is likely to react favourably to.

A Boycott Would Be Detrimental to the Poor

Carrying on with the above point, if we were to stop imports from China of a particular product, say ACs, then people in India will have two alternatives. Either they will have to purchase expensive American or German ACs, or they will have to opt for Indian made ACs, which are not as efficient in their functioning. While the rich will be able to switch to the foreign and expensive brands, the move will hurt the poor consumers and the middle class.

The lower efficiency will reduce the utility of the AC for them, and since they cannot afford the expensive ACs, they will not be able to buy an AC. Thus, eliminating or even curbing Chinese imports will greatly affect the lifestyle of the middle class and the poor sections of the Indian society.

It Will Harm Retailers and Manufacturers

Several retailers already have massive stocks of goods that have been imported from China, and if Chinese products are boycotted, then these producers will take in massive losses. Again, it will be the poorer and smaller retailers who will be the major losers in the scenario as they will have to throw away a lot of their inventory.

Also, several Indian manufacturers use cheap Chinese raw materials for their production, and a boycott would severely push up their cost of production, not only limiting their production capacity but also causing a surge in prices, which will affect whom? You guessed it? The poor. Again.

The Math is Not in Our Favour

The math of our import-export calculation with China is definitely not in India’s favour. According to the Ministry of Commerce, in the year 2018-19, China accounted for 5% of India’s exports and 14% of India’s imports. If we talk in monetary terms, India imports from China only 3% of what China exports to the world in general. More importantly, China’s imports from India are less than 1% of its total imports.

The point is that if India and China stop trading then — on the face of it — China would lose only 3% of its exports and less than 1% of its imports, while India will lose 5% of its exports and 14% of its imports. Currently, India’s imports from China are much larger than the next three largest suppliers to India combined.

India has Surplus Forex on their Hands Right Now

Currently, India has around $500 billion worth of forex reserves, which is much more than we have ever had. There are now sufficient reserves to pay for 12 months’ worth of imports by India. There are several reasons for the large reserves. The primary reasons are that oil prices have taken a dive, and that most of our imports have stopped due to the COVID-19 scare all over the world.

Whatever the reasons may be, the point is that this is a wonderful opportunity for India to be able to increase its import of raw materials and capital goods which can then be used to kickstart the economy of the country. At such a time, boycotting and preventing the imports from a major world economic power like China does not work in our favour.

Tariffs are a Guaranteed Way of Mutually Assured Destruction

While most trade wars involve tariffs, they tend to work better when there is a higher degree of interdependence between the two countries in question. And that is just not the case with this situation.

If India were to impose tariffs on China, it could simply turn around and impose similar tariffs on India, and that would harm India much more than our tariffs could. Simple reason: we’re more dependent on them than they’re on us. Not to mention, imposing too many tariffs would violate WTO rules, and might led to sanctions on India by other countries.

It Will Harm India’s Credibility

(Source: DNA)

India and Indian companies already have several contracts in place with Chinese contractors and companies. While several people have been demanding that India renege on these contracts due to the border tensions, doing so would inevitably harm India in the long run.

The reason for this is that most international trade agreements depend on only one thing: credibility. If India and Indian companies have a history of changing trade policies overnight and reneging on their commitments, then it might affect the decision of other countries to come to India to do business as well.

The Indian Economy is Already in Tatters

As we discussed in our Economic Slowdown series, the Indian economy is facing one of its worst phases ever. The GDP growth rate has been declining, several industries have been shut down, and the lockdown has not helped matters. In such a stage, the Indian government should be using cheap Chinese imports to help the Indian economy, instead of getting into a trade war with the largest economy in Asia.

In the precarious situation that the country is in, a trade war with China would only harm the economy further and cause severe problems to the country.  

Simply Put, It Won’t Work

The Chinese are everywhere. Every product that you use today has some part of it that was made in China. If we were to boycott every product and company that has operations in China, we would effectively have a massive shortage of products in the market, especially all electronics and automobiles. And if we don’t, then the boycott is meaningless.

Case in point: in 2014, economist Kilian Heilmann conducted a study titles “The Effectiveness of International Trade Boycotts”. In this, he studied the boycott of Japan by China as well as the boycott of Denmark by several Muslim countries. In both the cases, it was clear that specific companies which were targeted by the boycott faced huge losses, whereas to the overall economies, the effects of the boycott were very minuscule and negligible.

Most of the seemingly “Indian” companies have huge Chinese backing

A unicorn is used to refer to any start-up business that has a valuation of greater than a billion dollars. Examples of unicorns include Byju’s, PayTm etc. While these are predominantly Indian brands, what many people do not know is that many of these brands rely heavily on Chinese funding and support to stay functional and operational despite the huge losses that many of these companies have been sustaining over the past few years.

Hence, cutting off Chinese investments in India would have a huge adverse impact on the Indian economy, and could possibly cripple our start-ups for years to come.

Right Now, We’re More Emotional Than Logical

(Source: Arab News)

I get it, we lost several of our soldiers to a Chinese act of aggression and cowardice. Emotions are bound to run high, as they should. But possibly the worst thing we could do to pay our respects to them is to make impulsive decisions that go against the welfare of the very country that they died trying to protect.

The Confederation of All India Traders (CAIT) has recently announced that they plan to eliminate 70-80% of Chinese imports by December 2021. Not only is this unrealistic and impossible to achieve, but it is also going to harm thousands and thousands of small businesses and traders all across the country. As they say, never make decisions in anger or grief. They never end well.

In summation, while it might be a good idea to try and replace some of the Chinese imports with our own indigenous products, a boycott is not the right way to go. Reports show that several Indian industries are performing at only 30% of their actual capacity, and this can be changed in order to increase the productivity of Indian enterprises, and to achieve our dream of AtmaNirbhar Bharat.

Jai Hind!

-NK