No easy fixes to India-China trade

With India-US trade now resembling a collapsed Jenga stack, India’s presence at the Tianjin SCO leaders’ summit has set speculators speculating about better India-China economic ties. But rebalancing India’s trade with China presents a more complex picture than a similar attempt with the US. India’s manufacturing trade surplus with the US can be balanced by increasing arms and energy imports. China’s persistent trade surplus with India is driven by manufacturing and calls for protection. Another approach could be to plug into Chinese value chains to expand India’s manufacturing export footprint with the world. Rising value addition of Indian exports would act as a countervailing force to Chinese manufacturing competitiveness. China’s factory output has moved out of the labour cost arbitrage phase and is increasingly automated. India can pitch to seed vendor ecosystems using Chinese knowhow.

Just as there are no easy fixes to the India-China trade dynamic, there are also no deal breakers either. India’s sensitivities over its farm sector will probably be upheld in any reset of trade with China. Unlike the US, China’s agriculture trade runs in deficit and won’t benefit from easier market access. This allows India to fashion its engagement with China from a safe zone. Apart from food, the two countries have a common position on energy imports that can bind them into a closer bilateral engagement. China and India provide the purchasing power to deepen the energy market within BRICS.

Trade in services is largely untapped. It can be brought into play to balance bilateral trade. India’s growth is not going to be as manufacturing-intensive as that of China. It’s the poster child of globalisation in services, but needs to diversify its portfolio of services and markets. The Chinese economy is restructuring to lower its dependence on manufacturing. Geography helps in putting services trade on a fast track. There could be outsized gains if exchanges between the two most populous nations become stable.

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