View: How China holds International trade in its talons

In January 1998, French monthly Le Monde Diplomatique carried an article titled ‘China holds world trade hostage’. Set in the backdrop of the 1997 Financial Crisis, the article by Stephen S. Cohen postulated that China, ‘stripped of its old ideology’, was bent on ‘asserting itself as a world power in every domain’. In this regard, Cohen believed that the Chinese economic growth, particularly in exports, had come due to its movement to complex manufacturing. Yet, this growth had been at the cost of Southeast Asia, which faced the brunt of the economic crisis during that period.

In over two decades since the article was published, Cohen’s words seem to have manifested in the present; China is today an aspiring hegemonic power that is wielding not just exports, but its overall economic strength to assert itself across the globe. After China became a full member of the World Trade Organization (WTO), its integration in the global economy has been swift, and its growth nebulous, as it quickly rose to become the world’s second largest economy (in terms of GDP).

According to Lowy Institute data, before 2000, the US was at the helm of global trade, as over 80 per cent of countries traded with the US more than they did with China. However, by 2018, the number had seen a steep decline to mere 30 per cent, as China had become the largest trading partner for 128 of 190 countries. In 2020, China’s share in global trade was nearly 15 per cent, third only to the EU and the US. Additionally, China has managed to maintain a positive balance of trade despite its wider reach; in 2020, China recorded a trade surplus of USD 535.37 billion with an increasing tendency over the last five years. This was despite the global economic slowdown, which had led to decline in trade among countries as well as the criticism of Beijing regarding COVID-19 issue.

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However, Chinese integration in the international economy has come with a caveat. While the country did become a member of WTO, it never did follow the organization’s underlying values for free trade in spirit. The Dragon nation is a country that has access to open trade across the globe due to WTO norms, but its own economy is what can be described as a ‘black box’ due to opaque political and economic decision making, and notoriously unreliable data provided for the benefit of CCP.

In addition to the aforementioned internal factors acting as a magnet to unfairly tip the scales in China’s favour, there have also been concerns regarding its external trade policies. Chinese trade practices have been described as mercantilist and protectionist; mercantile, due to the tendency of manipulation of currency and higher production to oversupply markets, and protectionist for utilization of tariff and non-tariff barriers that act as a roadblock for foreign commodities and companies to enter and survive in China. Due to WTO rules, trade is not subjected to tariff barriers as often, non-tariff barriers such as import quota and licensing have acted as instruments to restrict entry for foreign trade.

Chinese mercantile behavior also manifests in the form of ‘dumping’, i.e., selling a commodity in another country at a price lower than its own domestic market. The US and India have been perhaps the largest victims of China’s dumping policy, especially with regards to electric commodities, aluminum and steel.

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The rising discontent in the US regarding opacity in Chinese trade policies and the resultant high deficits brought forth the US-China trade war, which threw the issue of the Asian nation’s entrenchment into global supply chains in a stark light. The scrutiny rose further due to the COVID-19 crisis, where China held bilateral trade ties ransom to deflect any questions or allegations against it on the origins of the pandemic. This has led to several countries reassessing their dependence on China for their supply chains.

An example of this can be seen in a recent report that details Indian exposure and overdependence on China. According to it, five leading Indian companies, engaged in sectors ranging from automotive and home appliances, to pharmaceuticals and chemical industries, have a high dependence on China for their market activities. This may be due to dependence on market revenue in China (Tata motors deriving 80 percent of revenue from a subsidiary that sees China as key market), manufacturing of products or their auxiliaries (VIP luggage having 50 per cent manufacturing in China, Voltas depending on Chinese manufactured compressors and controllers), raw materials (India imports over 63 percent of its total pharma imports from China), or stake holding and investments in major sectors. Yet, actual Indian presence in China is limited, and the trade deficit runs in double digits in favor of China.

For India, the issue has major geostrategic implications due to the border issues, but the South Asian country should also be treated as a sobering example of how Beijing has sunk its talons in various countries with little cost to itself. Yet, despite the rising examples of antagonism, coercion and corruption from the Chinese government and its representative companies during COVID pandemic, the Chinese trade with South Asian countries (including India, despite policy attempts against it) still grew.

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The Centre of Strategic and International Studies, in this context, has urged for international players to ‘push back against Chinese economic coercion’, including in trade relations. However, that requires that Chinese hold on global supply chains loosened, which will require redirecting industrial and market units to other countries with similar capacities. The US, Japan and France have already started taking active steps to encourage their respective companies to rely less on China to make the world’s smartphones, drugs and other products. Yet, it can be expected to be an uphill battle; China’s size as both a global producer, as well as its market, means that companies tend to be ambivalent to the predatory nature of Chinese trade practices.

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