Should Indians Boycott Chinese Products?
In 2019-20 Export to china was $18 Billion. Compared to Imports
of $74 Billion.
This is the main strategy that China is using against every
Country. Creating Reserves and Surplus. As of 2020 they have reserves of almost $3
Trillion (Source: Investopedia). They are using this Surplus to develop Airport,
Ports, roads, etc. in small countries and increasing the Debt Trap so that they
can have Control over it once those countries default on payments.
Why Indian Government Can’t ban Chinese products?
India is a part of World Trade Organization and there is a
rule that Member countries cannot discriminate with Trading Partners or Other
Member Countries. There are 164 Member countries including all the big names
and there are tons of benefits of being the member of WTO. (source: WTO)
Exports is a main game. The more you export you will have
more money to import and make life easy. As you can’t produce everything by
yourself. We know this by our own example when we look back to our economy
before 1991.There will be no TCS, INFOSYS. Imagine if India in early 2000s had refused
to buy technology from Japan there’ll be no Delhi Metro. TVS and BAJAJ are
the biggest exporter of automobile in India and they Import raw materials
from China. Agrochemical industry in India is of about $5 billion out of that 50%
we export and 55% of the raw material is imported from China. Even if these companies
start buying goods from India which are 10% expensive will they remain
competitive? So, the solution is not to become a Closed Economy.
However, the WTO allows the Countries to save infant
Industry for 10-12 years so that they can grow by increasing duties and other
things.
How to become a Developed Economy?
Developed Economy is one whose GDP numbers are big. GDP is Gross
Domestic product or in layman language Sum of all finished goods and services manufactured
in a country. India’s GDP is near about $2.97 trillion.
Let’s understand this by real world example,
You are a Cloth manufacturer
and stitch the clothes by hands or Stitching machine using needle and thread
which takes more time and labor the cost of that cloth is let’s assume 100rps.
Now China have fully automatic machine that will save your time and cost of
manufacturing. If you install that Machine you can save your time, money and will produce more and can expand your business, even export your products and earn more. As we know GDP is directly related to what we
produce, so the more we produce the more our GDP will grow.
That’s why, we need to focus more on Producing effectively
and efficiently. Develop the infrastructure so that our cost remains as low as
possible and accept the technology from outside until we have our own alternative
to it. China and Japan are great examples of this.
In the link mentioned below you can check India’s trade data
of 2018 https://wits.worldbank.org/countrysnapshot/en/IND
Most of the products that India is able to Export is because we Import the raw material from outside polish them and then Export. On top of it we Import Crude from China and Export
Refined Petroleum to USA. Now think If we Stop Trade with China than what we
are going to export? Our fastest Growing
Export market is China 12.6% growth in 2018. If we boycott and they retaliate that’ll
be worst for both. Should Indians need to continue buying Chinese and suffer local manufacturers or buying Indian and burn their pockets?
Let’s understand this by Supply & Demand from Economics.
Demand side = Assume
there is a smartphone which costs 1 lakh to the consumer, less people (Let’s
say 10 people) will buy that phone because of limited money they have. Now the
price of phone is down to 50k, more people can buy it including those who are
willing to buy it at 1 lakh also. (assume 50 will buy now). Again, the
price decline to 20k the demand will increase (Assume 100 will buy at this price).
Now those who were willing to buy the phone at
90k,80k,60k,40k,30k. they are saving their money because they are just spending
20k on the phone this is called consumer Surplus. When Consumer gains by saving
or buying cheap.
Supply Side = Let us assume the Cost of manufacturing the smartphone is 1000rps.Customer demands the phone in 500rps the supplier will
refuse to supply as there is a loss. Later Consumers are willing to pay 10k for
the same phone, now the supplier will start to supply and he will continue to
do so until the demand is increasing with either constant or increasing price.
As the producer’s profit is also increasing now this is called Producer Surplus.
Go on the link to understand Consumer and Producer Surplus.
What should be the right price of the product?
We can Find the right price of the product where Demand and
Supply Curve intersect each other that point is called Equilibrium. So, it is
decided that there are 3k phones to be sold at 10k per phone but later Chinese
Smartphones enters the market and set the price to 7k definitely some customers
will shift towards low rates and the Indian producers will lose the market
share and producer surplus will be less.
But Consumer Surplus increases and the demand will also
increase. Overall, the loss of producers is less than the gain of Consumers
that is why Imports are not banned in any of the country.
You will notice that in our current Situation Consumer
Surplus is more important than the producers surplus or
loss as a whole for a nation.
According to the report of Oxford Economics – In USA average
household saves $850 in 2015 because they used Chinese products. Number of Households
in USA are 128 million. Approximately saving $100 Billion per year. Also keeps the Inflation down. Putting it into
perspective every Human on earth can have meals for 2.5 days. Now If we look
into money Multiplier effect. Suppose by buying cheap from china Indians saved
$10 Billion and put them into the bank which have Cash reserve ratio
of 4. Which means if we put 100rps in bank they will keep 4 and circulate 96 by
giving loans to businesses, etc. which will create employment opportunity in
India. As the employment will increase people will spend and save more in to
the banks and the Cycle will continue. India have a multiplier effect of 6.1
times which means by saving $10 Billion we can create a liquidity of $60 Billion
approximately.
So Basically, when we are buying cheap, we are helping the Country.
Will China Declare war?
According to a study
at Stanford Business School – Multilateral economic trade creates more stable
and peaceful world.
Ok, let’s say still China Declares war and Bombard
everything, Will they gain something? NO. because once there’ll be a war it’s
going to be big and when everything will be destroyed to whom China will going
to sell! Ghosts?
Worst Case Scenario when we boycott Chinese and if they
retaliate which is rational then there’ll be no trade among the countries and
now China will not suffer any losses in trade and business even if the war
starts. So, think what might cause the war and what not?
International relations are Complex, since 1948 USA has
given aid of more than $74 Billion to Pakistan and Pakistan’s defense budget is
roughly $10 Billion. We are not boycotting USA and it is good it’s not the right
thing.
This is the Condition with every Country we are not helpless
even China Imported $2.08 Trillion in 2019. India also import it’s major 6% to
china.
What should be the plan of action?
In India there are more than 6.5 Crore people leaving in extreme
poverty and out of those 2% dies from curable disease. We need to focus on
making lives better.
Not by running from the Competition but by Improving ourselves
and Outperform and Outproduce China. We need to work smarter and harder and
improve our efficiency.
GDP of China in 1980 was $192 Billion whereas India’s was $186.5
Billion (Sources: World Bank)
And see where we are now.
China has done really well in the last 40 years and we also
need to do this. We need to come collectively and try to increase our GDP every
individual can contribute in it by giving extra 10% at their jobs and businesses.
If you don’t think about your companies think about the Country you live in because whatever we produce and whatever we consume is being accounted and that’s how they
calculate GDP. Work harder, earn more, save more and that’s the road to Glory. So,
Stop running away from the Competition but take part in it and Outperform. Accept the Challenge to work extra 10% and you'll see we will be outperforming China in coming 15-20 years. Play with Intelligence and not like Fools!
- Anshul Rastogi
(Sources- World Bank, Investopedia , Oec.World, Statista.com, IMF, Livemint, Economicshelp)
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