Dealing With Chinese Trade Deficit In A Post-COVID-19 World

What do we pay with for the products and services we need? With money of course, but if we realize that money is merely a medium of exchange. Then what do we ultimately pay with, we pay with PRODUCTION. The fact that the money is just a medium of exchange does not change the basic truth that to buy something we have to sell something first. The same phenomena goes with imports and exports as well. What we sell is export and what we purchase is import. The economic laws, however, do not change simply because we have crossed the border. They say history says everything, now if we look more into history, we can find the reasons that have led to a massive trade deficit between China and India.

The resentful relationship between India and China isn’t something new for the entire world, this conflict exists from late 1962. The history of bilateral relations between these two countries dates back to mid-1980s. Efforts were tremendously made to strengthen each of their countries economy and to further integrate and expand the economic relations between India and China. In 2001 China joined WTO and misused it for its benefits. Since then China has used every trick in its playbook for subverting the established world order.

As the years have passed the Sino-Indian relation has gotten worse day by day. Now China has become the most powerful market controller in Asia, it has made its dream fulfilled of combining labour, skill and science and created a new world order which has made better human life possible. Despite the strong anti- China sentiment, successive Indian governments could not stop the expansion of the Chinese market influence with its cheap goods. As a democracy of 1.3 billion consumers, India was forced to set aside its fears about the territorial expansion across the borders. The country could not afford to keep China out of its markets as Chinese products helped low-income groups to raise their standard of living. The only reason for Chinese goods flooding the Indian market is because the Chinese labour knows how to produce goods that are not just cheap and durable but are well aligned with particular countries needs and tastes. They adopted and studied the multi-cultural needs of Indian market so efficiently that they started exporting cheapest sarees, Diwali crackers and idols of Gods in India, henceforth we can say that Chinese have made their inroads everywhere.

The main reason Chinese companies export so much is because their government encourages those companies to dump more and more low-cost products to other countries by giving them export subsidies. They live in a distinctly different culture which is capable of producing goods for all sorts of cultural and commercial markets. We can find made In China products in almost all the countries across the world and when it comes to imports in its own country, then China does not allow market access to many foreign companies. Instead, it has started copying these foreign companies and using their technology to create a copycat clone of these companies. There only strategy is to prevent other countries from benefiting from trade. There's a law in China that if any foreign company wants to do business in their country, they have to give their IP information to the Chinese Partners. From here the IP threat arises for many foreign companies doing trade in China. China was also accused of currency manipulation in the global market for deliberately undervaluing its currency in comparison to US dollars to maintain its cost advantage.

Along with many affordable items China has now become the birthplace of coronavirus which is now affecting the supply chain of not only China but other countries as well. The current pandemic outbreak has hit the Indian economy very badly leaving the citizens and workers of the country unemployed, for the first time in the history India is experiencing such a devastating situation.

WHAT INDIA AS A DEVELOPING COUNTRY SHOULD DO?

They say, “The Bigger the Challenge, the Bigger the Opportunity”. The pandemic outbreak should be taken as an opportunity to come up with some innovative ideas. The Chinese economy is getting impacted due to the coronavirus outbreak, India can push its exports in the global markets to fill up the space vacated by the neighbouring countries. India is set to produce the world’s largest number of engineers and hence the engineering exports from India can fill up the market vacated by China.

To reduce our dependency on China and to make Indian market competitive in providing global output and trade to the world, India currently needs some fine-tuning in designing medium- and long-term policies. We also need to scale up our different sectors to compete effectively with China even after Chinese exporters are able to normalise their global supply chain. The challenges that are being faced are domestic we have to scale up our technology, infrastructure and also reorient the policies by bringing global order for strengthening multilateral institution to confront the Chinese economical and political inventions during and post COVID-19 era.

The Indian market is flooded with cheap Chinese products. But on the other hand, Chinese goods even after paying for transportation are half as cheap than goods that are being produced in India. Most Indian markets would be unhappy, some others will try to push for tariffs to protect domestic producers. Others say that the competition between India and China is completely unfair as Chinese economy and exporters are far superior, more competitive and have more advanced technology. If Indian companies or producers are able to push the problem through tariffs on Chinese goods, they would gain, but all other people including domestic consumers would lose. In the absence of such tariff, the inefficient producers will get into trouble, and they will probably have to close their business or restructure it (that's the current scenario of Indian companies). Now which producer will care that whether he was pushed out of the market by domestic or foreign competition. NONE. Customers don't care about it either, they just want to get cheaper and better products. In this, way customers living standard will increase because they will be able to afford to buy more goods, this will also give a chance to those producers who were forced to shut shop due to cheap imports. Now, that the people can afford new things then these producers can start to provide them as well. In other words, importing closes one avenue of work thereby opening up another.

In response to the urge of boycotting Chinese goods, India has taken steps towards self-reliance known as ‘Make In India’ and prime ministers ‘vocal for local’ campaign has led to rise of many Indian companies working towards covering up the supplies from China, but the main reason of import of Chinese goods is its low cost and also boycotting China will hamper local startups where there is an investment of billions of dollars by China. In this crisis the countervailing duties, safeguard duties and non-tariff measures like rules of Origin, Sanitary and phytosanitary treatment measures and technical barriers to trade would be some of the measures that can be used to tackle the trade deficit with China.

Crisis doesn’t always have to be all negative for the economy, some crisis brings opportunities as well. We as a nation can also turn this pandemic from a crisis to an opportunity. This can be done by smarter policymaking from the government by coordinating with industry leaders to make doing business in India much easier so that domestic producer can also compete in the international market.