Trade as a bargaining chip with China won’t work

After the Galvan incident, where China appears to have encroached into Indian territory, and subsequent confirmed deaths of 20 India soldiers, there are lot of calls in India of reducing imports from China. While as a strategy it may have its merits – you don’t want to depend on imports from a hostile nation; but it is no bargaining tool. China won’t lose sleep even if India were to totally stop imports from China.

To put this discussion into some context, like good analysts, lets put some data down. The following table shows the trend of imports and exports between India and China.

As can be seen, India runs a trade deficit with China. It is also clear that India’s imports from China have grown at a faster clip than China’s imports from India. The trade deficit with China has hovered around USD50B mark in recent years. This is 30% or more of India’s total trade deficit.

So in India’s context, trade with China is a significant number. However, in China’s context, trade with India hardly matters.  China’s total exports are around USD2.5trillion. Its exports to India are less than 3% of its total exports. Even if India totally stops imports from China, it will hardly make a dent to the Chinese economy.

However, total stop of imports from China won’t be easy. In sectors like electronics, pharmaceuticals and solar power, India is critically dependent on China.

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