Why trade ban on China is a Bad Idea

June 30, 2020, The Liberacy:- Trade Ban, the most uprising topic for the Indian “WhatsApp University” nowadays amid tensions on the border with China.
On the night of June, 14-15 China’s PLA killed 20 Indian soldiers. This was the first time in 45 years that the Indo-Sino border has seen any casualty. It is reported that 43 Chinese soldiers were killed on the same night by the Indian soldiers, but the Chinese communist government did not disclose the numbers. Indian Army had a Chinese Officer rank soldier in custody, who was released days after negotiation.

India and China have fought 2 wars since Independence, and both wars were waged due to China’s Imperialist policy.

China won the first war of 1962, in the region of Ladakh (Aksai Chin) and since then have acquired a part of the Indian region of Ladakh.
India won the second war of 1967, in the region of Sikkim. The glorified victory of the Indian Army saved the land from Chinese aggression.

But, is it good to fire guns on the economy for tensions on the border?
Is it good to ban trade with China?

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Why trade ban on China is a Bad Idea.
Why trade ban on China is a Bad Idea.

The answer is NO. It is not healthy for India to boycott trade ties with China.
There are several reasons.

1. Most of the Import from China is of Intermediate products and very few accounts for Final products.

Intermediate products are the goods that are imported from any nation in raw or disintegrated form and then built and manufactured in India, this creates job opportunities and flourishing businesses.
Whereas, Final products are directly sold in the market, without benefiting any business or adding up to the Indian GDP.

70% of the Indian import from china is of Intermediate goods, like electrical machinery, nuclear reactors, boilers, etc.
What India can do here is reduce the import of final products like pots, sculptures, lights, etc.

2. The trade ban will hurt the poor and middle class in India.

Having a cheaper alternative to an expensive item has always benefited the poor and the middle class. These classes are the most price-sensitive, and hence putting a ban on Chinese imports will force them to spend more money on the items that could have been available for a cheaper price.

What India can do here is find an alternative for the available products from within Indian territory at a reduced price.
This will have a dual impact on the Indian economy.
First, less import cost that will save billions of foreign currency and second, massive growth in the Indian economy and GDP on the foundation of the Manufacturing Sector.

3. China will barely have any impact on a trade ban from India.

A trade ban on China will hurt India the most. It is the opposite of what India can think of because of the Total Trade Share of both nations with each other and with the World.

India only exports 5% to china of its total percentage of export to the world, whereas India imports 14% from China of its total percentage of imports from the world. A clear trade deficit.

China exports 3% to India of its total percentage of export to the world, whereas China imports only 0.9% from India of its total percentage of imports from the world.

There is a very huge significance of Indian trade with China, but on the other hand, there is a very small significance of Chinese trade with India.
A trade ban will do nothing but hurt the Indian economy, raising the prices of almost everything.

4. India will lose the Trust of foreign Investment.

India recently with its schemes like “Make in India” and “Start-up India” is trying to eye on the business that could flourish in the Indian territory, with a major role of FDI.
Whenever a foreign investment comes to a country, it always looks for two things, first, if policies can be changed overnight and second, if new taxes can be slapped within a day. These two things depict weak governance and policymaking.
With banning foreign companies under the headline of “National Security” will defame India as an investing center.

5. Increased Tariffs are mutually harmful and also to smaller countries.

It was argued that India must slap higher taxes on Chinese imports, or atleast on the final goods from China, a move that brought the USA-China trade war in late 2019.
This will be the most harmful policy if implemented as India and China both are signatories and part of the World Trade Organisation and any such move by India will be in violation of WTO norms.

In a bigger picture, any type of Trade ban on China from India will do nothing but reduce India’s domination of world trade and business.
India will lead itself an inch nearer in becoming a closed economy, the situation on India before 1991 LPG reforms.

The voices raised against Chinese goods are due to the large trade deficit. But, trade deficits are NOT BAD as it doesn’t show a slowing economy or a degraded economic structure. India has a trade surplus with the USA and a trade deficit with Nigeria.
Does that make India superior to the US or any inferior to Nigeria?

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