Not only are such moves ineffective, a drop in trade relations could leave India worse off
Chinese goods, boycott of Chinese goods, Ladakh standoff, boycott of Chinese products, atmanirbharta, lockdowns, MSMEs, Mahindra & Mahindra, Reddy’s Laboratories, covid-19 pandemic
Following the border standoff in Ladakh, there has been a clamour for Indians to boycott products from China, which is seen as the unreasonable aggressor. The outrage has been particularly pronounced on social media, with hashtags like #BoycottChina and #BoycottChineseProducts trending on Twitter. This comes just weeks after Prime Minister Narendra Modi’s call for atmanirbharta gave self-reliance the status of a national mission.
But does a campaign for the economic boycott of a country have any real hope of success, and is it even a reasonable stance? We live in a world which, despite many recent setbacks to globalization, is inextricably interlinked, with the supply chains of companies spanning various geographies. Products made by Indian firms contain components that come from China or use Chinese machinery to make them. Small and medium businesses, the focus of attention currently for their fragility in the face of pandemic-induced lockdowns, extensively use low-cost Chinese machinery and capital goods, besides trading in many finished products from that country. Large Indian companies like Dr. Reddy’s Laboratories, Mahindra & Mahindra and Sundram Fasteners have manufacturing units in China that cater to markets abroad as well as in India. In several segments, the fate of an entire industry could be in jeopardy if its China links are severed. Commentators have also pointed out how any such call to boycott Chinese goods sits uncomfortably with the billions of dollars of Chinese investment in local start-ups that are routinely held up as role models of Indian ingenuity.
Sure, India is a large market for Chinese goods, accounting for 3% of China’s exports and adding up to $75 billion in 2019. But here’s the thing: India’s $17 billion of exports to China account for a much-higher 5.3% of our total exports. Any trade war with China would hurt India, too.
That apart, there is also the more practical issue of whether it is at all possible for a country to boycott another in this age when global trade is such an intricate kaleidoscope of inputs from so many nations. Take apart any product today, whether it is a car, a phone or an aircraft, and you will find hundreds of components from several different countries, including China. Labelling a product clearly as “Chinese" would therefore be almost impossible. What’s more, given that country’s central role in global manufacturing, such labelling may render most critical products out-of-bounds for Indian consumers. Xi’an Aircraft Industrial Corp., for instance, is a key supplier of components to Boeing, whose 737 Max and 747 aircraft are part of Indian airlines’ fleets. Xi’an is a Chinese company, so will India boycott Boeing for its choice of sourcing?
It is also debatable how much effect a politically-motivated boycott can have. Iran, one of the most sanctioned countries in the world, still managed foreign trade worth $85.1 billion in the year ending March 2019, with exports adding up to nearly $41.4 billion and imports to a little over $43.7 billion, according to Tehran Times. Nor was this thanks to the largesse of a few countries favourably disposed to the country’s political dispensation. In spite of US sanctions, Iran managed to export commodities to as many as 128 countries.
In 2014, economist Kilian Heilmann published a study titled The Effectiveness of International Trade Boycotts, based on an analysis of the boycott of Danish goods by Muslim countries after a rupture over comic depictions in 2005-06 and China’s boycott of Japanese goods in response to the Senkaku/Diaoyu Island conflict in 2012. “Product-level analysis shows that the impact is concentrated in consumer goods with only minor effects for intermediates and capital goods, being consistent with the notion that international trade boycotts are mainly carried out by consumers and not by firms," he observed. “While the estimated disruption in imports from the boycotted country can be large, the fraction as total exports of the boycotted country is very low in both boycott cases (0.4% for Denmark and 0.8% for Japan). This suggests that even though an individual firm of the boycotted country might be hit hard, the overall effect on the export sector is negligible, rendering the punishment effect as mostly ineffective."
The timing of any such move by India is also questionable. China has been first off the mark in restarting industrial operations after its covid lockdown. It was the first to be hit by the outbreak, and thus also the first to recover. It will be looking for raw materials to fuel its recovery, which gives Indian suppliers a business opportunity. In fact, by April, China had begun importing finished and semi-finished steel from India.
It is significant that the call for a boycott of Chinese goods did not come in response to the covid-19 pandemic, which is widely believed to have started in China, even if it wasn’t actually manufactured there in a lab. This adheres to the general theory that most such boycotts are related to non-trade issues that are almost always geopolitical in nature. Sensibly, India’s Defence Minister Rajnath Singh has been stressing the need to resolve the border issue through dialogue. After all, India has border disputes as well as other issues with several countries. Shunning their products or services is not an answer.
Instead of boycotting Chinese goods, we should negotiate with Beijing to open China’s market further to Indian services as well as more finished goods. That would help us raise our exports.