The on-going stand-off between the armies of the Indian and Chinese nation states on the Sikkim border has created quite a bit of ruckus in the, now very nationalistic, Indian public. People in India are calling for a total boycott of Chinese goods. This demand for boycott of Chinese goods is nothing new.
Economics of Boycott
The relevant question here is that, what consequences will follow if India’s nationalistic public actually decide to boycott Chinese goods? Without going into the details of numbers of what is the volume of trade between India and China etc., let us carry out a theoretical analysis of the consequences that will necessarily follow this action of boycott.
What will happen in India after the boycott?
The first thing that will happen in India is that the consumers will be at a loss immediately because they will not be able buy and consume the cheap Chinese goods now. They will have to spend more on acquiring the same product because similar Indian good will be of high price. This means their standard of living will now be lower compared to the situation of no boycott.
Second, now because consumers are forced to spend more of their limited income on costly Indian goods, they will be left with less income to spend on other Indian goods being produced by other Indian industries. This in turn will lower the demand and employment in these Indian industries. For example, if before the boycott I was spending 50 rupees on buying a Chinese bulb out of my total 100 rupee income and 50 rupees on buying Indian pen then now after the boycott I will be forced to spend 70 rupees on an Indian bulb leaving me with spare income of only 30 rupees which will not be enough to buy the 50 rupee Indian pen; this means the pen industry suffers losses and they either shutdown or downsize and fire some of their workers unemploying them. This in turn will result in pen producers and laborers spending less on other Indian goods in turn lowering income of other producers too. This will be a cascading effect engulfing the whole economy. A boycott basically will make everyone poor in India compared to the scenario of ‘no boycott’. This poverty will kill many in India; surely more will die compared to deaths right now in Sikkim border confrontation!
Third, investment activities in India will also slowdown because now saving will reduce due to the fact that the boycott forced the consumers to spend more on costly Indian goods. This lowered saving in turn will lower investment which in turn will lower the future income of Indians again making them poor!
Fourth, Indian producers will also suffer the same fate as consumers. They will also have to spend more on buying costly Indian capital goods for their businesses. This high cost will lower their efficiency and production. It is very much possible that some businesses will simply shutdown because they totally depend on imported cheap Chinese technology. This will again make Indians unemployed and poor. Again like consumers, because producers will be forced to spend more of their limited income on costly Indian capital goods, their saving and investment activities will suffer. This will again make Indians poor.
And last but not the least, as the French economist Frederic Bastiat said, when goods will not cross borders, armies will! This boycott can actually start a real all out conventional war between the Indian and Chinese nation state. And we all are aware of the fact that war only means ‘death and destruction’. The Indian nation will be destroyed. All the progress that has taken place in last 70 years will turn into rubble in a matter of minute. India will be back in the dark ages.
All in all, if Indians want to be poor, hungry, unemployed and if they want to totally destroy their country then they can happily go ahead and declare a boycott of Chinese goods.