In today's newsletter we talk about the tacit trade war brewing at Indian ports


The Story

There’s a problem brewing at the ports. Imports from China have started piling up as officials started withholding consignments at their facilities. In fact, DHL and FedEx have decided to temporarily suspend India bound Chinese shipments after backlogs started flooding their warehouses.

The funny bit here — No one seems to know why this is happening.

Officials from the departments of commerce and revenue say no orders have been issued on this front. There aren’t any explicit diktats on restricting or physically inspecting Chinese imports. They added — “If in certain cases, some containers are held up, then it may be based on specific intelligence inputs about suspected materials, etc, and on risk assessment, which is a routine exercise.”

But clearly, this isn’t routine. Especially considering there have been several indications that officials have been planning to retaliate against China — economically, of course. But why wouldn’t they push this message through official channels? After all, it would be a lot more effective to pursue this agenda through policymaking, right? Well, there’s a tiny problem with that.

Taking an official stance is risky. It could attract the wrath of the World Trade Organization and trade unions, or cause China to retaliate. It’s easier to discourage importers by simply delaying approvals. If you don’t clear consignments, there’s more incentive for manufacturers in India to source products locally or seek alternatives elsewhere. In fact, it’s a tactic China has used to great effect in the past — according to Indian exporters.

Be that as it may, these delays definitely have the potential to hurt China. And some might contest that it’s eminently desirable considering Chinese aggression has been on the rise. However, trade walls hurt India as well.

As the minister for Micro Small and Medium Enterprises Nitin Gadkari only recently stated — “stopping Chinese imports could result in huge losses for Indian businesses that placed orders before the border clashes even happened.”

China makes up for a huge chunk of India’s imports — around 14% between April 2019 and February 2020. According to the Confederation of Indian Industry, China supplies 45% of our total electronics imports, almost 40% of the country’s organic chemicals, over 30% of local machinery and ~25% of our automotive parts. So any disruption on this front could have serious consequences for our supply chain.

Consider the auto industry. Industry bodies SIAM and ACMA claim that delaying automobile consignments could lead to disruption in vehicle manufacturing across the country. ACMA President Deepak Jain said, “The automotive value chain is a highly complex, integrated and interdependent one; non-availability of even a single component can, in fact, lead to stoppage of the vehicle manufacturing lines.”

And don’t even get us started on the pharmaceutical industry. India imports most of our raw materials (Active Pharmaceutical Ingredients) from China and this includes crucial medical equipment such as pulse oximeters and infrared thermometers — equipment that hospitals need to fight the COVID-19 pandemic. And switching to a different supplier, if that’s possible will inevitably increase costs across the board. And while some people might gladly be willing to pay this price, we have to remember that roughly 22% of this country still lives below the poverty line. Not all of us can pay up.

Nonetheless, after repeated lobbying from industry groups across the board, officials finally seem to be relenting. 3 days ago, Indian Customs started the process of clearing Chinese shipments that were stuck at ports for the last ten days. A government official even added that the consignments were being cleared without complete physical checking. Meaning, they want to expedite this process as quickly as possible. And that’s a good sign. So perhaps the only takeaway from this story is this — In being overzealous in our bid to hurt China economically, policymakers must make sure that the collateral damaged is limited. Or it will yield no material benefit to anyone.

Until next time…

Share this finshots on Whatsapp and Twitter.