Will Wuhan parley see China and India join hands against Donald Trump’s trade war?

The US president’s trade tiff with Beijing could collapse the globalisation trend, threatening China’s and India’s economic well-being, Mohan Guruswamy writes

PUBLISHED : Saturday, 28 April, 2018, 5:00pm
UPDATED : Saturday, 28 April, 2018, 9:37pm

Indian Prime Minister Narendra Modi and China’s president, Xi Jinping, are meeting once again, this time at Wuhan. The shadow of the Doklam stand-off is now subsumed by the larger shadow of the looming trade war and the threatened rollback of globalisation. 

US President Donald Trump has fired the first shot with sanctions targeting US$100 billion of Chinese imports. If not checked, the consequent economic bloodshed might result in the collapse of the globalisation arrangements that set off the greatest expansion of the world economy in the last three decades.

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This equally threatens the economic well-being of China and India. 

Clearly globalisation has benefited China the most, but India too has profited hugely from it. While China has a huge market for its manufactured goods in the US and had a trade surplus of US$245 billion in 2017, India had in the US last year an information technology market of US$120 billion. 

The value addition of India’s IT exports vastly exceeds the value addition generated by China’s export of manufactured goods to the US. High economic growth rates in both countries are strongly tied to their US trade and to substantial trade surpluses with the US.

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Thus, for the first time in decades, the most immediate and important interests of India and China coincide. Both leaders will see the need to act in concert. Clearly this should be at the top of the Xi-Modi agenda in Wuhan. 

Next on the agenda will almost certainly be the huge trade gap favouring China that has resulted in India’s directly contributing about US$400 billion to China since the turn of this century – and about US$250 billion just in the last five years. India has been hoping that China would help reduce the figure somewhat by investing in India, preferably by commercial FDI, instead of the investments Indian economists believe are a debt trap. 

The fates of India and China in a world of rapid economic, technological and social change are inextricably linked.

India has been sceptical about the economic play known as the Belt and Road Initiative as little more than a grand scheme to run down Chinese reserves in US banks, and relieve China’s industrial overcapacity in infrastructure-related sectors such as cement, steel and power generation. In this manner, zero earning reserves are converted into interest-bearing loans to hapless countries like Pakistan, Sri Lanka and others. Sri Lanka is already feeling the bite of the Hambantota “investments” and has to restructure the debt by giving the port and 19,000 acres on a 99-year lease to a Chinese state-owned enterprise. 

China is bound to express its concern about joining the Quad, a quasi alliance of the US, Japan, Australia and India favoured by American strategists. Meantime, the US, Japan and Australia are separated from China by vast oceans and enjoy a sense of security that India cannot. We have a big land border with China and it will feel the immediate consequences of any conflict. Besides, the US and Japan are too closely integrated with China economically to be taken as credible allies by India. If India knows anything, it knows it stands alone. 

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India didn’t take part in the belt and road because it saw nothing of interest in it. When China makes a proposal that will incorporate India into its world view, India will respond suitably. Otherwise India has no intention of paying court to the “Emperor Far Away.” Indications are that there is a belated realisation of this in China now. The greater economic integration of India and China is the best hope for China and India’s sustained long-term growth. 

The fates of India and China in a world of rapid economic, technological and social change are inextricably linked. The GDPs of India and China within the next two decades will exceed those of the G-7. A major global power shift is underway. India and China must wake up to this reality and be prepared to play a historic role instead of living out the half-baked, childish fantasies of their under-educated “strategic experts”.

Mohan Guruswamy is a distinguished fellow at the United Service Institution of India in New Delhi