Commentary on Political Economy

Wednesday, 15 July 2020

How India Should Meet the China Challenge
Instead of erecting new barriers, it should be looking to deepen trade and military ties with fellow democracies.
July 14, 2020, 10:00 PM GMT+10

It’s hard to find a China dove in Washington these days. In New Delhi, it’s impossible. After a brutal, high-altitude skirmish in Ladakh last month left 20 Indian soldiers dead, anti-Chinese fury has surged on the subcontinent. There’s talk of consumer boycotts and investment bans; the government appears to be slow-walking once-routine approvals for Chinese imports. Recently, authorities even booted goofy-video platform TikTok off of Indians’ phones, along with 58 other Chinese apps.
The anger is understandable. China enjoys a massive surplus in trade with India, has invested heavily in its more modern and capable military, and is steadily encroaching upon its rival’s traditional sphere of influence in the Indian Ocean, as well as along their disputed land border. It poses an unmistakable long-term challenge.
But restricting trade, as Prime Minister Narendra Modi’s government seemed inclined to do even before this latest clash, would be a hopelessly misguided response. A new protectionist wave will only hurt ordinary Indians when they can least afford it, raising prices for consumers in the middle of a pandemic, depriving companies of key inputs and choking off much-needed investment. Given that India is only China’s 16th-largest trading partner, moreover, such measures are unlikely to strike fear into Beijing.
Instead, India needs to be doing the opposite: expanding trade with other nations. Even absent long-term competition with China, that would be a precondition for the kind of growth that India needs to create tens of millions of jobs for young workers and to lift many millions more out of poverty. The worsening rivalry between the two countries only makes meeting that challenge more urgent. The good news is that there’s a clear path forward for India — and, increasingly, an opportunity. 
Most obviously, India needs to finally develop an export-led manufacturing sector, as China and other East Asian nations have done, and work diligently to join global supply chains. With many multinational companies now looking to diversify production outside of China, India should seek to fill the gap by implementing long-delayed structural reforms to lure new manufacturers. Any new trade barriers — say, restricting Chinese investment in sensitive technologies such as 5G or reshoring production of critical goods, including pharmaceutical ingredients — should be carefully targeted.
At the same time, India’s greatest geopolitical advantage over China remains the number of potential partners it has. New Delhi’s foreign-policy mandarins would be wise to shed their traditional suspicion of external alliances and deepen the country’s military and economic ties with Australia, Indonesia, Japan and Vietnam — all of whom share fears of Chinese bullying. India should also be working with the U.K. and Europe to shore up international rules and institutions. Above all, it should intensify its cooperation with the U.S., which remains the only power strong enough to provide India with the weaponry, intelligence and diplomatic support it will need to resist China’s incursions.
There are also things India can do on its own to bolster its position in the years ahead. It should focus on modernizing a troop-heavy military that’s weighed down by salaries and pensions, for instance. It should work harder to improve relations with its neighbors in South and Southeast Asia, including by treating its own Muslim minority better. And indeed, it should continue to engage with China where it can, especially on efforts to combat climate change.
But even a nation of India’s size and history cannot take on a rival like China alone. Only an economically vibrant country, working with fellow democracies within a reinforced international order, will have a fighting chance of protecting its interests. India’s leaders should need no further reminder of that fact.

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