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Are India and China on the brink of a trade war?


Indian Prime Minister Narendra Modi with Chinese President Xi Jinping (Photo supplied)

Venu Menon
Wellington, January 6,2024

India and China are engaged in brinkmanship over trade, and the chances of that escalating to an all-out trade war between the two countries is spawning debate.

Each side is strident over claims that their trading partner is “dumping” products at prices lower than what is sold to their domestic consumers. Anti-dumping investigations have been launched and duties levied by either side.

New Delhi has also raised concerns over the ballooning trade deficit with Beijing.

In 2022, it stood at US$83 billion, an 89% increase from the previous year.

But will the squabble over balance of trade throw bilateral relations off balance?

That appears unlikely since security considerations outweigh trade in bilateral equations that are already under strain following the deadly border skirmishes that broke out between Chinese and Indian troops in the Galwan Valley of the Himalayan region in 2020.

Couple that with India’s growing maritime influence in the Indo-Pacific and its strategic importance to US efforts to contain China, and you have a toxic cocktail of factors waiting to combust.

Trade has brought a quietus on those smouldering bilateral tensions.

But trade is cornering attention at the moment with an assortment of Chinese goods, including vacuum-insulated flasks, tempered glass and mirrors, under anti-dumping investigation by India.

China has retaliated by launching its own inquiries into pesticides and other chemical imports from India.

Given the asymmetric trade relationship between the two countries, the face-off has drawn a calibrated response from China.

But importing Chinese goods is still the cost-effective option open to India. Chinese smart phones, smartwatches and power banks, as well as small appliances and accessories, continue to be popular among Indian consumers, surveys indicate.

China is mindful of that and will not want to disturb the status quo.

In 2022, Chinese exports to India were US$118.5 billion, according to the United Nations COMTRADE database on international trade.

De-escalation has remained the key driver of the Sino-Indian bilateral engagement since the 2020 border clashes.

That agenda was advanced partially when Indian Prime Minister Narendra Modi and Chinese President Xi Jinping met on the sidelines of  the BRICS summit held in Johannesburg in South Africa in August 2023. India and China are members of the five-nation bloc along with Brazil, Russia and South Africa.

But there have been hiccups along the way to normalisation of ties.

Beijing felt rebuffed when New Delhi spurned its showpiece foreign policy initiative, the Belt and Road Programme, launched amid fanfare in 2013.

Still, it does not suit China to allow bickering around exports to escalate into an all-out trade war, not least in view of India’s growing stature among developing nations of the Global South.

But the dilemma for New Delhi is that its deepening security relationship with the US in the Indo-Pacific region feeds into the US-China rivalry and constitutes a provocation for Beijing.

China views with suspicion India’s presence on the  Washington-led Indo-Pacific Economic Framework for Prosperity, as well as  the Quadrilateral Security Dialogue (also known as the Quad) along with Australia, Japan and the US.

But New Delhi’s proximity to Washington, premised on the containment of China, also tests India’s cherished policy of nonalignment.

Unsurprisingly, Beijing continues to nurture its ties with Islamabad through substantial inflows of military and economic aid.

While New Delhi and Islamabad are both invitees to the China-led Shanghai Cooperation Organisation (SCO), China views Pakistan as a counterweight to India and its growing importance as an emerging Asian economic powerhouse and strategic partner of the US.

For the present, however, China is not allowing itself to be baited by India’s growing assertiveness, egged on by the US, in the Indo-Pacific region. Instead, Beijing’s approach to India remains one of business-as-usual.

The bushfires erupting on the trade front will be kept from engulfing bilateral relations between the Asian giants for the foreseeable future.

Venu Menon is an Indian Newslink reporter based in Wellington

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