After a violent clash in Himalaya’s Galwan Valley between Indian and Chinese border patrols in June 2020, large parts of India’s business community decided to boycott trading with China.

In spite of that, China last year displaced the U.S. as India’s largest trade partner. India’s bilateral trade with China increased 5.5% to $86.4 billion, while India’s trade with the U.S. declined 9.5% to $80.5 billion.

India’s sales to the U.S. declined 3%, but America still remained the largest customer for Indian goods exports. By comparison, China took much less of Indian exports, but they increased 27% on strong demand for iron ore, cotton and a broad range of raw materials from India.  

That trend has carried over into the first six months of this year, with India’s exports to China surging at an annual rate of 70 percent.

Those numbers show that boycotts don’t work and that they should perhaps never be used by the two Asian neighbors representing nearly half of the humanity.

Get a border deal

Next week, China and India may have an opportunity to resolve the differences that led last year to the most serious military confrontation since 1975. Indian officials sound confident that trust has been rebuilt in the aftermath of the deadly encounters in the Galwan Valley, and they also believe that their imminent 13th meeting with Chinese colleagues will help to reposition troops around the agreed Line of Actual Control.

India and China are struggling with difficult legacies of colonial times. They are constantly clashing on what the British call “ill-defined” border lines stretching over 2,100 miles.

Both countries are saying they are ready for cooperative and productive relations, but it is very difficult to see how that can happen while they presently remain on a collision course.

That is an ominous departure from promising BRICS (Brazil, Russia, India, China and South Africa) ties, and a Russian and Chinese decision to admit India in 2017 to the Shanghai Cooperation Organization (SCO), a key group holding together the Eurasian community.

The confidence building process in Sino-Indian relations has been dealt a heavy blow by India’s participation in organizations such as Quadrilateral Security Dialogue, where the U.S., Japan, India and Australia want to oppose China’s alleged quest to become, in the words of Indian defense experts, “the sole Asian superpower” spreading “repression beyond its borders.”

India’s rivalry with China is nothing new. Things simply got worse as China’s impressive economic development kindled old fears of having a rich and powerful neighbor. Delhi, for example, has taken seriously the story of a “string of pearls,” put forward in 2004 by an American management consulting firm. In the event, Delhi was warned that this was China’s strategy to surround India with military and commercial naval networks in the Indian Ocean.

China, however, argues that is not its intent. Beijing is apparently busy developing alternatives via Pakistan, Bangladesh and Myanmar to avoid U.S. strangleholds (such as Straits of Malacca) that could cut off its access to vitally needed Middle East energy sources.

Even so, the metaphor of the “string of pearls” has taken a life of its own. The Indo-Pacific region has now been defined as an area of conflicting economic, political and security interests with China. And that has added a new dimension to the Sino-Indian estrangement.

Sadly, that’s now the security context in which the intractable China-India border issues are taking place. Indian military commanders think in those terms of reference when they say that they are hoping for productive disengagement talks next week, while remaining “quite well poised to meet any eventuality.”

The Sino-Indian tensions will also lead to problems in a broader geopolitical context. Instabilities in Afghanistan and the unraveling of the nuclear agreement with Iran will complicate India’s positioning within the unfolding new phase of the perennial “great power games” in Central Asia.

Nuclear armed neighbors can’t fight

Apart from that, India could compromise its booming trade with China, without any better or more lucrative outlets for its export sales. A much-touted Japanese market as an alternative to China is not even in the ten largest Indian export destinations. With strong infrastructure investments and a rapidly growing middle class, China is a large customer for India’s raw materials and consumer products.

A growing and a more balanced trade with China could make a significant contribution to the efficiency and competitiveness of Indian economy. This year, for example, India will have the fastest growing G20 economy, but its net exports are likely to take more than two percentage points off its projected GDP growth.

Generating more income from trade would prevent – and possibly reverse -- that huge drag on economic growth.

More balanced trade accounts and a steadily growing economy would also help to improve public finances. With a budget deficit of 10% of GDP and a public debt of 90% of GDP, India’s fiscal policy has no room for cyclical support of the economy. And with the household savings rate of 10.4% of GDP, the government takes all for its financing needs -- leaving no private savings for productive investments, the backbone of India’s noninflationary growth potential.

China says it wants to talk peace and a “win-win cooperation.” Beijing’s ambassador to India (remember, he is an instructed ambassador) announced, in front of a large Indian audience last week, his country’s readiness “to bring China-India relations back on track of healthy and stable development.” Let’s hope Delhi takes the Chinese at their word.

And here is my bottom line: Bringing the economy center stage could be India’s most useful geostrategic exercise.