Many experts argue article in Foreign Policy, James Crabtree argues that a trade war with would be a bad idea for . In his view, ’s “military is inefficient, underequipped, and dogged by procurement corruption scandals.” To develop its military strength, needs a dynamic economy, and an “inward economic direction” would only benefit in the long run. Therefore, an – decoupling is a terrible idea.is the weaker power unable to take on . In an
Han and Hindu Nationalism Come Face to Face
These analysts are wrong. Their argument against decoupling is based on three implicit assumptions. First,is a deeply-divided country unable to act or respond decisively. Second, is dependent on the Chinese economy for its growth. Third, ’s rise is inexorable and has no option but to come to terms with it. These assumptions are true, but it is an error of judgment to treat them as unqualified truths.
A Trip Down Memory Lane
For Indians with longer historical memories than many of these experts, these arguments sound familiar. Anglo-Saxon publications have long hectored, advised and moralized on Indian issues. On July 5, 2014, the editorial board of The New York Times made a case against ’s membership of the Nuclear Suppliers Group. To be admitted, needed “to sign the treaty that prohibits nuclear testing, stop producing fissile material, and begin talks with its rivals on nuclear weapons containment.”
In response, Gurmeet Kanwal, a retired Indian brigadier-turned-defense analyst, called the editorial “partisan and condescending.” Some even saw it as neocolonial. He pointed to “the existential threat posed by two nuclear-armed states on India’s borders” that led to develop its nuclear weapons capability. Kanwal argued that had been a “responsible nuclear power” with a “positive record on non-proliferation” and had “consistently supported total nuclear disarmament.” In typical Sikh humor, he advised nuclear ayatollahs to focus on real proliferators and let go of the cap, roll-back and eliminate (CRE) stance they had adopted against since the 1990s.
Just asstood up to the US on the nuclear issue in the 1990s, it is capable of standing up to in 2020. An – conflict is highly undesirable. Ideally, New and should be able to work something out over endless cups of tea. However, sanctimonious advice from foreign experts about dire consequences of an – decoupling has to be taken with a bucket, not a pinch, of salt.
In 1998, nuclear despite dire predictions for its economy. Many in Washington assumed that depended on the West for its economy. Barely seven years prior, had experienced a serious financial crisis. The Gulf War and slowing exports to the US crippled an economy by rising deficits and increasing debt. The precipitous decline of the Soviet Union meant no longer had a godfather to bail it out. So severe was ’s 1991 currency crisis that it had to pledge its gold reserves and liberalize its economy to get a bailout from the International Monetary Fund. In 1998, was better off than in 1991 but certainly not in a strong position. Nuclear tests put it under immense pressure.went
At the UN, the Conference on Disarmament condemned Indian nuclear tests. In the preceding years, had watched the West ignore the 1989 Tiananmen Square crackdown and fete for its economic reforms. Condemnation for nuclear tests strengthened, not weakened, ’s response. It stood up to the West, ignored experts and upended nuclear apartheid. Today, is again in a mood to defy experts and stand up to .
Like Love, Trade Is Complicated
As troops amass on the trade bodies have formally announced boycotts of products. For instance, the Confederation of All Traders (CAIT) has listed 3,000 such products. CAIT is a national umbrella organization with 40,000 smaller trade bodies and 70 million traders as members. The government has tightened country of origin rules for e-retailers and other sellers.– border, a full-scale economic war has broken out. It is leading to a structural break in the . Both public opinion and political leadership is now committed to decoupling from . In , there is a ban on 59 apps by government authorities. Major
Demand for top-selling phone. Samsung has replaced it. Increasingly, selling goods using Southeast Asian is becoming difficult. The existing business model of buying in and selling in is under pressure.products is declining. Xiaomi is no longer ’s
In an additional twist, raids on companies and individuals for money laundering. It led to the arrest of a national. Apparently, he was married to a woman from ’s northeast border state of Mizoram, had spuriously obtained an passport and been arrested earlier for espionage. It seems trade is not as simple as experts imagine it to be. Intelligence, influence and geopolitics are inextricably intertwined with trade, business and investment. In the – economic relationship, three largely forgotten factors are noteworthy.tax authorities have conducted
First,enhanced trade ties with not only for economic reasons but also geopolitical ones. Becoming a key market and investment destination for was supposed to reduce the risk of conflict and wean off Islamabad. Aggressive actions have made reconsider this strategy and change tack.
Second, report concluded that imports were playing “a negative role for [India’s] domestic industry.” The report warned about the loss of jobs, an increase in bad debts for banks, a decline in tax revenues and a worrying dependence on for critical products. It concluded that does not play by WTO rules and “the problem of dumping is a matter of concern across the globe.”’s manufacturing sector is reasonably well developed but has suffered from competition since joined the World Trade Organization (WTO) in 2001. A 2018 parliamentary
report to the US Congress expressed concern at “ ’s continued embrace of a state-led, mercantilist approach to the economy and trade.” It detailed “substantial costs borne by WTO members as a result of ’s problematic trade regime” and the challenges presented by its “non-market economic system.” Given ’s track record, there is a case to be made for taking a more protectionist path.is not alone in having concerns about ’s abuse of WTO rules. A 2018
There is another tiny little matter. Protectionism has played a key role in industrialization for any latecomer. Furthermore, industrialization has been the key driver of economic growth. In a 2019 article, one of these authors observed that the first major act passed by Congress was the Tariff Act of July 4, 1789. Without protecting its infant industry, the US would not have emerged as an industrial power.
Since 1978, China has followed the American playbook on steroids. It has powered through the largest and fastest industrialization in history. Its companies enjoy the advantages of infrastructure, cheap financing and political support. Therefore, they have been able to achieve economies of scale. As a result, Indian companies have been blown away. An India-China decoupling might give sectors from aerospace components to advanced pharmaceuticals a second chance.
Third, Chinese imports into India are nice-to-have, not must-have, goods. Demand for them is elastic unlike the inelastic demand for energy from the Middle East and the US. An India-China trade war that leads to a decoupling of the two economies could lead to short-term pain but has a strong rationale for the longer term.
The Shape of Things to Come
In any case, experts forget that India is unlikely to turn entirely inward as it did after independence in 1947. Recently, billions of dollars have poured into India from the US. Reliance Jio, an Indian mobile internet company, raked in $15 billion in 10 weeks. This is indicative of a deeper trend. Given new geopolitical imperatives, India is now looking to boost economic ties with friendly powers. It wants Korean, Japanese, European and American firms to set up shop in the country. Foreign market players who can act nimbly would be in a good position to grab some of the approximately $60 billion China’s trade surplus with India. There are new investment, manufacturing and trading opportunities emerging as the status quo changes and a new order emerges.
Many economists predict a short-term price shock as Chinese goods stop coming into the country. They forget that India has struggled with jobless growth even during the best of times. Decoupling with China could boost domestic manufacturing not only for large but also for medium and small industries. This would increase employment, tax revenues and even demand thanks to a multiplier effect. Improved job figures further increase political support for decoupling and decrease India’s need to subsidize agriculture so heavily. For decades, agricultural subsidies have put pressure on public finances. If a lower amount is spent on subsidies, pressure on the fiscal deficit would abate.
To sum up, India has strong reasons to decouple and no longer consider WTO rules sacrosanct. A tectonic shift is underway. After World War II, a new rules-based order emerged. The end of the Cold War strengthened this order and led to visions that Western democracy was the final destination for all societies. With polarization and partisanship at home, Western democracies themselves are in peril. The order that emerged in 1991 is crumbling and a new one is about to emerge. History offers us lessons as to what to expect.
In the past, India and China focused on their spheres of influence with the Himalayas keeping them apart. Both prospered. In this age of trade, peace and prosperity, a Chola empire based in the modern-day southeastern state of Tamil Nadu ruled Malaysia (Putrajaya), Indonesia (Srivijaya), Sri Lanka and the Maldives. The Middle Kingdom held sway over Mongolia, Korea and Japan. Both India and China could go back to sticking to their historic spheres and to trading with each other.
At the moment, China has followed salami tactics and encroached on territory India claims as its own. China has also been meddling in Nepal, Myanmar and Sri Lanka, India’s key neighbors. Since 1963, China has been in a close alliance with Pakistan. Yet China has never played a role in the Indian subcontinent and cannot suddenly turn into an overlord here. Therefore, close India-China economic ties no longer make strategic sense.
Additionally, China disingenuously claims to meet India halfway while insisting that the onus to improve the border situation lies entirely with its neighbor. This is a one-way, not halfway, diplomacy that suggests aggressive intent. The Chinese also seem determined to win the war of narratives and are enlisting the support of free market ayatollahs to do so. It is only natural that the Indian narrative is bound to be different. It is in sync with the new realities of the day, which drive India’s decision to decouple its economy from China. Trade, investment and deep economic ties are a jolly good thing with allies and friends, not with rivals and foes.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
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