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History proves threats don't work: Why India-China should focus on trade not tirade

Business Today In
By Professor  

Noted journalist Fareed Zakaria once quoted American economist Thomas C Schelling who had famously observed that two things are very expensive in international politics - threats when they fail and promises when they succeed. China's Global Times with its daily tirade against India appears to be doing exactly that. Where there is no promise in its daily rhetoric but threats are as clear as it can get. It claims that Beijing has the capability to resolve the conflict through non-diplomatic means. What does that mean? Military confrontation, it writes. It is important for India to take note of Global Times' message as it isn't like any other media house which we can ignore. It is state-guided and Beijing communicates through it.  

Despite China's repeated provocation, India's response has been measured with External Minister Shushma Swaraj making it clear that for any resolution in Doklam area, both the countries should pull its forces back from the territory in question. What is interesting in all of this is that while India is firm on its stand, it hasn't talked of steps that could hurt Chinese interest in turn. Brahma Chellaney who is a strategic thinker and professor of strategic studies at Center for Policy Research recently argued that it is time India should use its most powerful weapon against China: Trade.

But, why is it that India holding itself back from acting on economic front? India-China trade volume is roughly 71 billion US dollar. And latest data which was released in January showed India's trade deficit with China has now increased to a whopping USD 46.56 billion. India's import from China in 2016 was USD 58.33 billion. However, its export to China was merely USD 11.76 billion. The growing trade deficits with China was something that Chellaney referred to when he said: "By importing USD 5 worth of goods from China for every USD 1 worth of exports to it, India not only rewards Chinese belligerence but also foots the bill for Beijing's encirclement strategy."     

This raises a pertinent question whether New Delhi should really clamp down on Chinese imports to put economic pressure for any meaningful dialogue with Beijing. History suggests that it could be a good politics but certainly not a good economics, especially when you are not fully prepared for it.


Various reports on India-China trade suggest that our industry is heavily dependent on some of the Chinese products such as computer hardware, power generation equipment, steel, electronic components, consumer electronics and electrical machinery. Import of Chinese power generation equipment helps India to produce electricity at lower costs. "In case we want to cut down our import from China, we have to improve our manufacturing capabilities and look for the alternative markets to compensate the trade," said Varaprasad Sekhar Dolla, Professor at Centre for East Asian Studies in JNU. 

We also have to look at the volume of Chinese trade with other countries. China's trade with the US is close to USD 400 billion, with Hong Kong it stands USD 300 billion and with Japan it is somewhere around USD 150 billion. So, can our boycott or ban, as Chellaney suggested, of bilateral trade of USD 70 billion really affect the Chinese economically? Varaprasad thinks that it could be used as short-term bargaining-chip but it is certainly not a long-term solution.


May be Professor Dolla is right as history has proven time and again that economic pressure on any country has barely achieved its political goal. And wherever it worked it worked with several other factors. British scholar and senior Research Fellow at Oxford University Professor Adam Roberts argues that there are very few cases where you can identify sanctions as having had a success, except sometimes in combination with other factors. He refers to Rhodesia and South Africa where sanctions contributed to change but he insists that they were only one factor among many. But the economic conditions of these countries cannot be compared with that of China's as it has considerable economic and military clout in today's world affairs.     

While sanctions could be an effective tool to punish a country but there is hardly any evidence which can prove that economic pressure could force a country to change its stand on issues that are as sensitive as its security and borders. Let's take an example of the United States' sanctions on Russia and North Korea. Former US President Barack Obama slapped economic sanctions on Russia over latter's intervention in Ukraine. Following the sanctions, Russian economy were badly hit, however it couldn't deter Vladimir Putin from using his military to encourage the Ukrainian separatists. The United States also put sanctions against North Korea, but did it achieve what it wanted? No. Instead, North Korea is today more hostile -with nuclear missile- than it was few years ago.


If India wants to deal with China, it has to focus on manufacturing and export to bring down the trade deficit and its dependence on Chinese market for cheap products. Ritu Agarwal who is an associate professor at Centre for East Asian Studies in JNU suggests that instead of talking about boycotting or banning Chinese products we should look at the possibilities of increasing our bilateral trade. Talking about an initiative -Kunming South Asia Expo- which was started in 2013 by a Chinese province Yunnan, professor Agarwal said: "There are very few participants from India to showcase in such expos as we don't have much to show there." She further said India should take advantage of such initiatives by promoting Indian-made products. India-China have market of close to 2.7 billion people, both could benefit from each other.


At a time when the US is backtracking from its global leadership role and European Union is at the receiving end for its tightly-held bureaucratic way of functioning, India and China could emerge as next alternatives to these powerful economies, observed Dr Nehginpao Kipgen, assistant professor and executive director of Centre for Southeast Asian Studies in Jindal School of International Affairs. Dr Kipgen said that any military escalation between India and China at this point will not only affect the two countries but has the potential to destabilize the entire Asian region.

And why it is important for theses two fastest growing economies to stick together is the fact that they have been the part of multiple intergovernmental organizations and one of them is BRICS Bank, which was believed to have been established to counter World Bank and IMF. And if anything happens - between India and China on military front - at this juncture, there could be a serious existential threat to the most ambitious financial institution based-in Beijing.

Given the weight that these two Asian giants carry in the world politics, any adventurism could be an expensive one. Remember Thomas C Schelling - Threats in international politics is a serious business.