Troubling China-India conflict is ‘economic’

What’s worse than two populous, nuclear-armed countries killing each other’s soldiers? Two populous, nuclear-armed countries letting their longer-term relationship wither.
Fighting along the Chinese-Indian border on the Tibetan plateau hasn’t come out of the blue. Ties, never solid, are increasingly becoming a casualty of the way New Delhi is being drawn into the wider rivalry between Beijing and Washington. If trade and investment suffer as a result, the deteriorating relationship could lead to problems decades down the line.
“India has to review and reduce its current economic dependence on China,” Gopalaswami Parthasarathy, a veteran diplomat, wrote in the Hindu BusinessLine.
He’s pushing at an open door, because the relationship already looks to be on increasingly shaky ground. Economic nationalism is on the rise in India — and China looks to be the most visible loser, wrote an analyst.
Last year, the US overtook China to become India’s largest trading partner. That could be a moment as significant as when the US moved ahead of Japan to become China’s biggest partner, in 2004. In April, New Delhi tightened its foreign investment laws, a move widely interpreted as aimed at Beijing. It’s looking at restricting share-based investments from China too, according to the Economic Times.
In November, India decided to walk away from the Regional Comprehensive Economic Partnership, a trade bloc backed by Beijing that will bind China to other major Asian economies. Despite the total value of India’s exports growing by nearly half between 2010 and 2019, the sum going to China shrank 14% over the period, deepening a trade deficit that’s fueling India’s nationalistic turn.

Out of Balance
All this is concerning, because trade relations can act as an important restraint on conflict. The immediate economic loss that would result from war with a major trading partner is one factor that can stop skirmishes from deteriorating into major battles.
One study of late 20th century conflicts by economists at Sorbonne University in 2008 found that while openness to trade doesn’t automatically prevent war, there’s a greater risk of conflict when countries grow less economically dependent on each other, as appears to now be happening with China and India. Paradoxically, that means globalisation can make matters worse: Countries that become more integrated with the world economy are more able to endure the loss of commerce with a single nearby rival.
You can see this most obviously in two of Asia’s most worrying military flashpoints. Trade between North Korea and South Korea approximates to zero, so it’s hardly surprising that the demilitarised zone between them is the other spot in the region that’s teetering on the brink of war.
More to the point, consider India’s most difficult relationship. At the time of independence in the late 1940s, India took nearly a quarter of Pakistan’s exports, which in turn bought about half of its imports from India. That trade rapidly evaporated through the 1950s, until war in 1965 closed off commerce altogether for nearly a decade. Relations never recovered. Just 1.8% of Pakistan’s exports went to its eastern neighbor in 2018. India counts Nigeria, Belgium and Mexico as bigger export partners than the country with which it shares a 3,300-kilometer (2,000-mile) border.

—Bloomberg