China is reportedly imposing restrictions on exports of certain key industrial inputs and capital equipment to India, and commentators have warned against the potential adverse fallout of the move on some of India’s sunrise sectors. Foxconn’s iPhone unit in India, electric vehicle manufacturer BYD, etc. could face delays in component sourcing, as also Tata Electronics, which has manufacturing ties with Apple. The move by the world’s largest trading nation, which is set to cross an incredible milestone of having a $1 trillion trade surplus with the rest of the world in 2024, exposes several fallacies and myths. Despite the rhetoric of New Delhi being restrictive and chary about imports from the bigger neighbour, not just its industry and consumers but even its manufacturing ambitions remain heavily dependent on imports from China. These inward shipments have been rising relentlessly, with no real policy impediments by India. In FY24 alone, China registered a merchandise trade surplus of $85 billion with India.
To be sure, going by China’s data, that surplus may be even higher at $103 billion in 2024, far higher than the $57 billion reported in 2019. Beijing’s curbs on exports of industrial intermediary goods to India may be meant to force India to withdraw its “restrictions” on Chinese investments and issuance of visas to Chinese professionals. However, that is at best half the story. The Chinese move also betrays that it is quite affordable for Beijing to curb certain exports to India, if it thinks these could serve to enhance India’s tech-intensive manufacturing capabilities. With India having a share of less than 5% in its total exports, it doesn’t make much difference for China if exports of certain chosen goods to the country are restricted for a specified period. In short, China’s move goes beyond trade strategy, and may well be guided by hostile motives.
China seeks to use trade as a weapon. The reality is that this plan hasn’t seen any serious setbacks, despite the pushback by the west. Even the US’s imposition of high tariffs on Chinese goods in 2018 hasn’t slowed China’s ascendancy on the global trade landscape — its exports rose by $1.1 trillion between 2017 and 2023, even as annual shipments to the US in 2023 was down $80 billion or 16% from the 2017 level. What is to be noted is that while the much-touted China Plus One (C+1) supply chain strategy, of which India will supposedly be a big gainer, is stumbling, China has already made much headway with its coherent counter-strategy. It is using a host of countries like Mexico, Vietnam, and Asean members as willing conduits for indirect shipments to the US, and the European Union.
This strategy by the world’s second largest economy, which still contributes the most to global growth, and accounts for a third of global manufacturing, is only likely to intensify with the new Trump administration expected to sharply raise tariffs for Chinese goods. India would do well to position itself more strategically in this virtual war zone. It has to focus much more on export sectors, where it is relatively easy to make a quantum jump, and sew up more alliances for tech-intensive production with Japanese, Korean, and European firms. The rupee should be allowed to move more freely to find its real value. Import substitution and tariff policies ought to be well-informed, supplemented with creation of domestic capabilities, and guided more by self-interest.