OCTOBER 13, 2016
The plan to boycott Chinese imports is neither practical nor is it in the Indian national interest.
There has been many nationalist calls for boycotting Chinese goods as a retaliation against China for blocking India’s bid at the UN to designate Jaish-e-Mohammed chief Masood Azhar as a terrorist, following the Uri attacks and the subsequent surgical strikes carried out by the Indian army. Presumably, India is tired and frustrated of China tacitly supporting Pakistan and thus, the clarion call is for consumers to boycott all Chinese products en masse, so as to hurt the Chinese economy, especially at a time when it is reeling. This has obtained mass support from not only the ordinary citizens, but is being backed by influential MPs and others from the political class.
Such a move is neither practically feasible in order to obtain the desired result, nor will it be in our national interest to do so. Let us examine the feasibility angle first.
India is the biggest importer of Chinese consumer goods and the trade deficit of India with China is one of the biggest between two significant trading partners. India imports almost seven times more from China than it exports to it. The range of goods that we import from China is massive: consumer durables such as electronic products, mobile phones, plastic items, industrial goods, vehicles, solar cells, essential pharmaceutical products, including tuberculosis and leprosy drugs, antibiotics, among many others.
Impractical, at best. Impossible, in reality
Even if we wanted to, it is nearly impossible to keep China out of our daily lives. There’s a little bit of China in every product we consume. Ironically, the laptops and mobile phones that we use to forward the message to boycott Chinese goods are made in China itself. The modern day production process is complex and interconnected. Every good that we use has different components from various countries. Take the mobile phones: it will have some rare earth elements from China, uses the labour and land from China, has investment and capital from the US or an European country, has entrepreneurship from Japan or Korea, and it finally, might use software made in India. Thus, it is impossible to isolate any country and boycott its products.
It is also important to understand that this kind of consumer boycott movements is hardly new or unique. It has been tried and it has failed many times in the world previously. China itself tried to boycott all Japanese products in the early 1930s to protest against Japanese colonisation. The US consumer forums tried to boycott French goods in 2003 to protest against France declining to send troops to Iraq post 9/11. Ghanians boycotted European goods; Jamaicans boycotted goods made from Trinidad and Tobago; Russians boycotted European agricultural products, etc. The list goes on. The only common thing between all these various events is that none of the boycotts were successful in their mission. It all failed and dissipated within a few weeks and the reason for that is always simple: economics. To understand why the boycott movements started, we have to understand why the countries imported these goods in the first place. We have to realise why India is so heavily dependent on China for imports.
Comparative Advantage
Why does India rely so heavily on China for its imports? The answer lies in practical economics. China can produce many of these goods cheaper and more efficiently than India can. Thus, the average consumer, who is price conscious, does not really care whether the products are made in China or in Eritrea, as long as he gets the best goods for the cheapest price. The only practical way to boycott Chinese goods is to deploy an import-substitution method and produce alternatives at home, which is far from ideal. If we as a nation would want to boycott Chinese goods, we would be traveling back in time to the autarkic nation that we were post-independence and this would effectively harm overall social welfare. We tried import substitution methods in the 1960s and 1970s and our rate of economic growth was low and stagnant for a long period. Basic economic theory tells us that each nation will produce the goods that it has a comparative advantage in and then trade it for goods with other countries.
If India were to try and make all the products that we currently import from China at home, it would involve a considerable reallocation of our resources from productive to unproductive uses. Immediately, the range of products available as a choice to the consumer would diminish, the quality of the products would be worse and the prices would be higher. The welfare gains from trade would be wiped out and the cost of all the products would become considerably higher and the retailer and the consumer who relied on cheaper imports would suffer.
What is India’s national interest?
The important thing here is to distinguish what is in India’s national interest. If we define our national interest as the greatest good (higher income) for the greatest number of people, then import substitution would just not work. Imported products allows consumers from all income levels the ability to consume these products at lower prices and retailers to maximise on their sales.
How do you respond to the Chinese actions in the UN, then? It is a political problem and largely needs a political resolution. If we were to impose trade sanctions against each country that has mildly annoyed India in the geopolitical realm, we would be left with no one to trade with. The US has traditionally given monetary aid to Pakistan despite Pakistan’s unwillingness to curb home grown terrorism. Can we afford to not trade with the US? Saudi Arabia and other middle Eastern economies fund Pakistan’s terrorism directly or indirectly. Can we afford to stop importing oil from these countries?
Harming one’s own citizen’s in order to extract revenge on another country seems to be an ill-advised move. Each citizen can take a call on what they want to buy or not. If Chinese made plastic diyas during Deepavali is not to your liking, don’t purchase it. But, that’s no reason to call for a universal boycott on Chinese imports.
Finally, is this dependence on China for imports good? Perhaps not. As of now, we do not have a comparative advantage in producing the goods that we import from China. However, with the right policies, we can produce some of these items or contribute a greater amount in the global production value chain. For that, we need to improve our productivity, free up labour laws, reform land acquisition policies, fix our credit system, and so on.
Anupam Manur is a Policy Analyst at the Takshashila Institution.
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