The core of mercantilism is to export as much as you can and import as little as you need. India does the exact opposite
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Gayatri Sundaravadanan _80983@Chennai
A lot of highly intelligent people think China is the cat’s whiskers. Thus, “Power in international trade disputes in a fundamental sense reflects power over supply, not power over demand, which is something economists have always tried to say.”Paul Krugman, the Nobel winning economist who is a trenchant critic of the Donald Trump government, wrote this in an article a few days ago. He was comparing the US and China.Trump, he was implying, made the mistake of thinking that bottomless American demand would prevail. But it was China’s control of supply that has won out.Krugman is both right and wrong. China wins only because of its control of the supply of a few rare earths. Much of the rest of what it produces can be, and is, produced quite easily elsewhere.Yes, it’s true that it sells what it produces very cheaply. But that’s because of gigantic subsidies and currency manipulation. Economists have researched this to death. Countries have protested. A few have increased import duties steeply. China doesn’t care.When Trump increased tariffs on Chinese goods, he would have succeeded except that he made the same mistake that he made when he attacked Iran earlier this year. He forgot that China controls rare earths just as Iran controls the straits of Hormuz. Every Achilles has a vulnerable heel.But to conclude from this that it is supply that determines power in international trade is probably wrong. By that logic, Russia should control both China and Europe, which together produce nearly $50 trillion worth of goods and services. It doesn’t, because without the demand from China and Europe the Russian economy would collapse entirely while that of the buyers would merely deflate while they diversify their sources of supply.China’s weaknessDespite temporary phases of having the upper hand, a single seller is therefore always more vulnerable. The Chinese should bear this in mind while withholding supply. Actually, China knows this. And that’s why it’s constantly putting out the news that it’s invulnerable. But who is it fooling?Let’s not forget that it can’t feed itself. Nor is it self-sufficient in energy. In fact, far from it. If tomorrow there were food or energy sanctions against it, together the two would very quickly bring it to its knees.Indian mercantilismBut leave Krugman aside and let’s return to mercantilism. Where does India stand on it? Believe me, you don’t want to know because what India has done is mind-boggling.In a typical inversion of policies which make neither economic nor political sense, India has stood mercantilism on its head. The core of mercantilism, as enunciated by the Englishman Thomas Mun in the 17th century, is to export as much as you can and import as little as you need. India does the exact opposite.Two things have been mainly responsible for this cosmic absurdity. One was the political belief that we needed to reverse the colonial economic model of being an exporting country that didn’t have any industrial base of its own and the other was the need to stop the colonial maltreatment of labour.It never occurred to anyone that rapid industrialisation is inconsistent with the mollycoddling of labour. You can’t have both. Communist China understood this perfectly, we didn’t. Basically, to industrialise massively and quickly, policies have to be pro-capital, not pro-labour.But in India equity for labour displaced efficiency for capital. And that is how we stood mercantilism on its head, because our comparative advantage in labour was wholly neglected.So amongst the various counterproductive things we did, we stopped producing for export. But China after 1978 did the exact opposite. It now has a $20 trillion economy. We have a $4 trillion economy. We used to sell to China. Now we buy everything from it.It is not as if India’s first prime minister wasn’t told about the negative outcomes of his economic policies after 1957. He was, but he ignored all the warnings.Can the fallout be fixed? Not unless we prioritise efficiency over equity. Will we do it? Yes but in homeopathic doses, as in the new labour codes.What does that mean? I think we should replace that 0 in 2047 with 1, to make it 2147.I mean, look at us. Even after 79 years of Independence we are governed by politicians and babus who can’t decide what proof is sufficient to establish Indian citizenship. What can we expect of them?Published on June 29, 2026
