India Must Not Mix Up Border Issues With Economic Imperatives

By Nantoo Banerjee

China’s sudden change of mind to uphold peace and tranquility with India at the Line of Actual Control (LAC) and work for early resolution of outstanding issues should not be read beyond these words as framed at the joint declaration at the end of the 30th meeting of the Working Mechanism for Consultation and Coordination on India-China Border Affairs in Delhi, earlier this month. China seems to be willing to make a careful compromise on the border issue after a gap of almost four-and-a-half years, when the Chinese troops tried to aggressively change the status quo on the LAC in eastern Ladakh without much success.

Hopefully, the Chinese peace offer does not come with an unwritten rider that is to allow more merchandise export to the Indian market. China needs a steady export market to partially cover its shrinking trade surplus with the United States. China’s exports shrank sharply in November as Donald Trump’s imminent return to the White House brings fresh trade risks. China is out to grab the vast market in India by dumping a whole range of merchandise.

India has become China’s (including Hong Kong) second largest source of trade surplus and the fourth largest export destination after the US, South Korea and Vietnam. The world’s No.1 exporter, China would probably settle for a small military compromise on the Ladakh border in exchange for a bigger pie of the Indian market. Last year, India’s import from China was worth $121.97 billion, according to the UN Comtrade Data Base on international trade. US President-elect Trump has pledged to slap an additional tariff on Chinese goods.

Trump wants to introduce tariffs in excess of 60 percent on Chinese merchandise. Trump’s threats have rattled China’s industrial complex, which sells goods worth more than $400 billion annually to the US. Last year, China’s trade surplus with the US amounted to $336 billion. As a single country, India came next. The European Union and ASEAN, representing clusters of nations, were placed ahead of India in China’s trade surplus list. China is naturally concerned.

It may be interesting to note that before the US presidential election, China had unofficially supported Democratic Party candidate Kamala Harris, a strong supporter of Ukraine in the country’s fight against Russia, to ensure that its exports to the USA were not disturbed. A Harris victory would have further escalated the Russia-Ukraine war. China probably did not mind Ukraine’s NATO-backed military resistance against Russia, its so-called key “ally”, to continue for the sake of its unhindered export to the US.

Over the years, China’s massive exports to the US since the Nixon era helped the People’s Republic (PRC) become the world’s second largest economy. China’s economy was worth only $113.69 billion in 1972 when the then US President Richard Nixon visited China to establish relations with the PRC after years of U.S. diplomatic policy that favoured the Republic of China in Taiwan. It also helped open a big US-China economic and trade partnership, making China a formidable economic and military power today.

In 1972, China’s communist regime, led by Mao Zedong, decided to establish a diplomatic link with the US after a gap of 23 years. Communist China had its own strategic reasons to open dialogue with the US as its relationship with the more powerful Communist neighbour, the Soviet Union, threatened to turn sour despite their shared political ideology with the USSR’s growing influence in Asia.

By the late 1960s, China and the Soviet Union were involved in frequent border skirmishes threatening to verge on all-out war. President Nixon and his secretary of state Henry Kissinger decided to exploit the opportunity to rebuild a relationship with China to corner the Soviet Union in order to create a balance of power between the US and the mighty USSR. “The enemy of my enemy is my friend’ Nixon had said. China’s rise to economic power started thereafter. In 1978, the country launched a major economic reform program by adopting an open-door policy to attract foreign investment and technology while maintaining its commitment to socialism.

China is now the world’s second largest economy with a GDP of around $17.8 trillion. Donald Trump has vowed to make imports from China much dearer to slash the US trade deficit with China to rebuild its economy and push employment in the US. China needs a big and growing market such as India to keep its export-driven economy flourish. And, this might have driven China to indirectly support Democrat Kamala Harris to continue to enjoy trade concessions. Chinese exports are expected to reach a historical high this year as customers have been rushing to front-load orders in the light of President-elect Donald Trump’s threat of higher import tariffs when he takes office in January. According to analysts, China’s export growth is expected to accelerate to seven percent during the current October-December quarter from the same period last year pushing the country’s total exports this year to $3.548 trillion.

Thus, China’s sudden change of mind to uphold “peace and tranquility with India” at the Line of Actual Control (LAC) appears to be more artificial than real. Militarily far advanced, China has already surrounded India with its considerable strategic influence over Pakistan, Bangladesh, Sri Lanka, the Maldives, Nepal and more lately Bhutan. India would probably make a major mistake to link its trade and economic imperatives with the Chinese ‘peace’ offer at Galwan.

India must drastically cut down direct and indirect imports (through Nepal) and investments from China to expand its own industrial production and protect the small and medium scale sectors. Several Indian industries – such as steel, solar modules, furniture, glass, textile, paper, leather, automotive, medical, electronics goods, thermoplastic polyurethane, handicrafts and MSME clusters, such as fireworks, decorative lights, toys, silk weaving, and festive products — are reeling under Chinese trade dumping. India must take a hard line on imports from China. The massive trade deficit with China is killing the country’s economy, erasing the value of Rupee, raising inflation and creating unemployment. India’s economic peace and prosperity are not negotiable. (IPA Service)