Why does China trade ban a bad idea?

One of the main reasons why banning trade has been the first reaction is the notion that having a trade deficit.
Having a trade deficit/surplus against a country doesn’t make the domestic economy weaker or worse off.
India has a trade surplus with the USA, that doesn’t mean that our economy is stronger than the USA.
Similarly, we have a trade deficit with South Africa, but that doesn’t mean that our economy is weaker than South Africa’s economy.
So a trade deficit with a country doesn’t mean we are worse.
A trade deficit with China only means that Indians buy more Chinese products than what Chinese from India. It shows that Indian consumers, as well as the Chinese producers, gained through trading.
At one level, no country is self-sufficient and that is why trade is such a fantastic idea.
It allows countries to specialise in what they can do most efficiently and export that good while importing whatever some other country does more efficiently.
In case of persistent trade deficit , the domestic government should put in place policies and create the infrastructure that raises competitiveness, it should not “force” or even “nudge” people to move away from trade because doing so will undermine efficiency and come at the cost of the consumer’s benefits.

If Chinese ACs were replaced by either costlier Japanese ACs or less efficient Indian ones, richer Indians may still survive this ban — by buying the costlier option — but a number of poor, who could have otherwise afforded an AC, would either have to forgo buying one because it is now too costly (say a Japanese or European firm) or suffer (as a consumer) by buying a less efficient Indian one.

Several businesses in India import intermediate goods and raw materials, which, in turn, are used to create final goods — both for the domestic Indian market as well as the global market
Contrary to popular belief an overwhelming proportion of Chinese imports are in the form of intermediate goods such as electrical machinery, nuclear reactors, fertilisers, optical and photographic measuring equipment organic chemicals etc.
Such imports are used to produce final goods which are then either sold in India or exported.
A blanket ban on Chinese imports will hurt all these businesses at a time when they are already struggling to survive, apart from hitting India’s ability to produce finished goods.

It will hurt India and Indians far more than it will hurt China.
While China accounts for 5% of India’s exports and 14% of India’s imports — in US$ value terms — India’s imports from China (that is, China’s exports) are just 3% of China’s total exports. More importantly, China’s imports from India are less than 1% of its total imports.
The point is that if India and China stop trading then — on the face of it — China would lose only 3% of its exports and less than 1% of its imports, while India will lose 5% of its exports and 14% of its imports.
It is much easier for China to replace India than for India to replace China.
What if China decides to abruptly ban all trade and forbid all private investment via any route into India?
Of course, India would survive, but at a huge cost to common Indians while depriving many Indian businesses (the start-ups with billion-dollar valuations) of Chinese funding.

One of the first things an investor — especially foreign — tracks is the policy credibility and certainty.
If policies can be changed overnight, if taxes can be slapped with retrospective effect, or if the government itself reneges on contracts, no investor will invest.
Or, if they do, they will demand higher returns for the increased risk.

Raising duties on Chinese products might lead to the same kind of reciprocation from China which will again hurt India the most.
Going away from the rules of WTO might eventually side-line India in the global trade arena.
The world will bypass India and carry on trade if India doesn’t play by the rules.

Today Current Affairs Upsc Exam Syllabus & Previous Yearpaper.