What started off as a border standoff is turning into an economic retaliation, well, sort of. After losing men to a low-tech, high-altitude brawl with China on June 15 in Ladakh, India finds itself in a nationalist spiral over boycotting Chinese products. As some enraged citizens threw Chinese TV sets from their balconies and others burned effigies, India’s trade bodies also endorsed calls for economic backlash. The Indian government has reacted by rolling back its public-sector enterprises’ telecom and railways contracts with Chinese firms. And in an apparent bid to target consumer imports from China, e-commerce majors have been directed by the Indian government to mention ‘country of origin’ alongside products sold online.
Earlier this week, the Indian government escalated matters further by banning 59 Chinese mobile apps, including the popular TikTok and WeChat platforms, on grounds of national security and user privacy. While PM Modi himself has been championing the “buy local” theme for some years now, the campaign has been revived on national TV.
In a way, India talking up economic reprisal, instead of engaging in warmongering to settle scores, may not be such a bad thing, in this heated environment. It can act like a circuit breaker that shuts a system down instead of blowing it up when things get too hot. If people feel they have an economic choice, they may vent through their purchases and move on.
For now, it is relatively easier to block apps than formally impose a goods’ embargo. But what if the “spurn” proved sticky and created a trend that threatened trade liberalization that emerging economies rely on so deeply to improve their people’s living standards? As things stand, however, the rationale to boycott Chinese products, which has been going on in India on a low-key mode for several years under the patronage of trade hawks in the ruling party, is more emotive than economic in nature and thereby limited in what it can achieve in terms of positive results. There are several reasons why.
While it is true that India’s lopsided trade terms with China – manifest in the whopping trade deficit of over $50 billion last year – is a source of grumbling in New Delhi, it is also evident that a number of Indian manufacturers in sectors like pharmaceuticals, automotive, chemicals and electronics depend heavily on Chinese intermediate/raw material imports to make goods for domestic and international markets. It cannot be that intermediate goods are good and finished goods are bad. Besides, in recent years a number of Indian startups have made it big, thanks in part to Chinese tech, capital and expertise.
It’s also possible that India may end up hurting itself more. A dash towards economic isolation will ensue if fringe voices that oppose free trade and foreign investment grow louder and impede the availability of capital, technology and markets for Indian firms. Consumers will, of course, be worse off when they buy local products that are half the quality at double the price; but lasting damage will come the way of Indian companies that need to become innovative at home and competitive abroad for India to join the ranks of big economic powers. It will comfort strategic rival China to watch India become an autarky again.
Also note that consumers are too complex a creature, thereby having a disparate impact on calls for economic boycott coming from activists, celebrities or politicians. A purely grassroots consumer campaign has less likelihood of sustaining if it doesn’t seep into official policy. Consumers seek convenience, so their buying habits can be sticky. It’s also a normal observation where some consumers end up purchasing a product from the same company that they find fault with. (The analogy may be imperfect, but despite several wars and ongoing hostilities, Bollywood songs have remained famous in Pakistan).
As for China, negative media coverage of even calls for economic boycott by a billion+ people will have a brand damage that will outweigh any loss of exports. Beijing cannot afford such reputational threats to catch on, for a number of Western and Pacific nations stand alienated, too. Huawei and other Chinese firms are already in the eye of the storm. The pathway for China to reorient its economy towards services and local consumption still runs through the surplus its factories create. Amidst the pandemic, keeping those units humming is even more important. If the Indian boycott worked in extracting concessions from China, it would be seen as a sign of weakness when Beijing negotiates hot-button issues, mostly linked with trade and investment treaties and telecoms, with Washington and Brussels in the coming months.
While there are reports that Chinese exports have lately been undergoing extra screening at Indian ports, it is unclear if more significant retaliatory steps are in the offing. Slapping tariffs would be one way to do it, short of imposing export bans that can imperil local industries and consumers with shortages. Large-scale or blanket bans are also much harder to reverse out of public fear (case in point: Indo-Pak trade breakdown that started in February 2019 and intensified in August 2019). In exploring options for economic pushback, the Modi Sarkar may have found an outlet for public anger. Such a facility should be used with caution, or else it will backfire.