2 min read.Updated: 18 Jun 2020, 10:17 PM ISTLivemint
China may deserve to be a target of Indian anger, but snapping all commercial ties with it will not achieve much. We should calibrate our response by what’s good for the economy
Calls for a boycott of Chinese apps, products and services have reached decibel levels unheard before, a sentiment popularly justified by China’s Himalayan perfidy. The choices that consumers exercise are typically a mix of value calculations and emotional dispositions, and brands that put people off must suffer the consequences. With stakeholder approval, corporate customers and institutional buyers have the right to behave likewise. This is a market phenomenon. It also gels with Prime Minister Narendra Modi’s call for a self-reliant India at the ground level. When it comes to policy, however, the calculative aspect of what we buy should determine decisions. The government has reportedly asked state-run telecom firms to lay off Chinese equipment. Private players may soon be under pressure to follow suit. In the odd case, there are security concerns, too. For example, China’s Huawei, a 5G leader suspected of loading machines with spyware on behalf of its deep state, must not escape scrutiny. We cannot risk enabling espionage. Meanwhile, official curbs on assorted Chinese imports are said to be under contemplation. A rush to raise trade barriers indiscriminately would be inadvisable, though, for these are likely to prove disruptive in the short-term and could produce a self-goal in the long-term. If the country must wean itself off Chinese goods, we should calibrate such a shift by what serves our economic interests.
China is not a market economy, but a state-dominated one. This must duly be taken into consideration, given its record of “dumping" products in other markets at super-low prices. Now that Beijing has given up trying to shake off its non-market tag at the World Trade Organization, it has become easier for us to invoke “unfair trade" while erecting defensive barriers against some Chinese exports. In theory, dumped products are those that are produced in vast quantities to gain economies of scale for the surplus to be exported at prices below their cost of manufacture. In practice, Chinese costing has always been opaque, and so we need other tests to pinpoint dumping. China’s non-market status allows a wide range of proxy measures. A judicious use of these would clearly serve our cause well.
Most Chinese imports, however, may be available cheaply only because they are competitively made. Sure, their makers do profit by selling them here, but let us not ignore the benefits that accrue to us. A few products have no alternatives and cannot be forgone, while others are too costly to either make locally or procure from elsewhere. Without cheap inputs for medicines, automobiles, mobile phones and other gadgets, the cost base of our industrial output could rise, altering domestic price-value equations for the worse. Over time, industries shielded from foreign competition by tariffs walls also tend to turn inefficient, churn out low quality products, and overcharge customers. Not that a switch away for the sake of self-reliance cannot be achieved at all. Past policy experiences of East Asia suggest that import substitution could be combined with domestic efficiency if protective import duties are programmed to decline from year to year, exposing local businesses to import rivalry bit by bit. Tariffs could also be tied to export targets, forcing Indian firms to perform better. Whatever strategy we adopt, for self- reliance to work, our economy must do well.