More than half-a-century ago, Nixon, a Republican, lifted the trade embargo against China. Three decades later, Clinton, a Democrat, facilitated the entry of China into the World Trade Order (WTO). Both did it under the belief that techno-economic exchanges will not adversely impact security strategy. How wrong both were is seen by the belated recognition of China having emerged as the main rival of the US on the strength of the riches gained by trade with the West which enabled it, in the bargain, to acquire Western technologies without huge expenditure on R&D.

The US National Security Strategy 2025 says that China “harbours the intention and, increasingly, the capacity to reshape the international order.” This new geostrategic reality was recognised by Europe two years earlier. The European Commission’s “Joint Communication to the European Parliament, the European Council and the Council on ‘European Economic Strategy’” on 20 June 2023, without naming China says, “The global pandemic, Russia’s illegal and unprovoked war in Ukraine, hostile economic actions, cyber and infrastructure attacks, foreign interference and disinformation and a global increase in geopolitical tensions have exposed risks and vulnerabilities in our societies, economies and companies that did not exist only a few short years ago.”

This assessment could not have been more wrong on one aspect; the risks and vulnerabilities existed since the day the dependence started; the dependence of Europe on Russia for oil and gas and of the world in general, on Chinese factories. The risks and vulnerabilities became visible the day Russia and China decided to exploit this dependence. The Security Strategy should be a manifestation of foresight. If nations come to know of a chink in their strategic security armour only when the enemy exploits it, it shows a glaring absence of that foresight.

This absence of foresight came as a result of a serious flaw in the widely accepted theory of foreign trade introduced by David Ricardo in 1817. It is called the ‘theory of comparative advantage.’ In simple words, it says produce where it can be produced at the cheapest; the rest of the world should buy from there. Why this theory broke down after working for 150 years is another economic factor – ‘economy of scale,’ which implies that the per unit cost of production falls as you produce a larger quantity. The reason is simple; the fixed costs like R&D, land, equipment and higher management are divided over a larger number of units produced, resulting in a lower per unit cost.

The West enjoyed this economy of scale since the industrial revolution, making the rest of the world dependent on them through constant change in the product line. As the underdeveloped countries matched something, they were already outdated. Fifty years ago, China started displacing the West through this very idea of economy of scale by creating mega factories that outpriced the West. The flaw in the theory of comparative advantage was not that the idea was wrong; it was a partial analysis as the equation ignored something critical for any nation. While calculating the cost of production, only pennies were counted and there was no mention of cost to strategic security due to economic and technological dependence on another nation. That cost has become apparent now when Europe had to create, almost overnight, facilities for liquefaction at the alternative sources of gas and regasification on Russian shores, after Russia stopped supplies all of a sudden. The risks and vulnerabilities were not noticed by strategy planners till the day the Russian valve was closed. Oil and gas are the biggest wealth creators for Russia; European imports had given enough wealth over the years to Russia to maintain its huge nuclear and missile arsenal and its more than one-million-strong military. The pennies saved earlier from cheaper gas cannot match the increase in EU military spending now due to the Russian threat; the EU defence budget boomed by $200 billion in the last four years.

Dependence on China is worse. Extraction of gas was ramped up by the US to come to Europe’s rescue; production of factory goods cannot be so quickly ramped up. Gas was needed to prevent Europe from freezing in winter and hence, the cost of alternatives was a secondary consideration. That is not so when we buy China-made running shoes; we go for the lower cost, even if our purchase is empowering an enemy. India, under constant security threat from China, increased its defence budget by $27.5 billion on PPP in the last four years while annually buying $20 billion of consumer goods from China because of lower prices. Indian consumers might have saved barely $6 billion by choosing Chinese products. The average consumer multiplier in India is 4.0; if these $20 billion were spent on Indian products, the GDP would have got a boost of $80 billion through wages from higher employment.

The European Central Bank reported that 2,40,000 jobs across the eurozone were impacted or displaced due to intense Chinese manufacturing competition in exposed sectors between 2015 and 2022 alone; in the US, the figure was 4,500,000. Almost all the countries trading with China have a trade deficit; they can export very little to China. The EU has a trade deficit of $360 billion with China. In the US, the figure was steadily climbing till 2022 when it reached $382 billion. Effective steps reduced this figure to $202 billion in 2025; while exports to China also fell, imports dropped a lot more steeply. The US has undertaken steps to delink supply chains from China, increasing its imports from Vietnam, Taiwan and India. India’s trade deficit with China has climbed from $100 billion to $112 billion in the same period, showing feeble Indian sensitivity to our imports empowering an enemy.

Taiwan, not even recognised by China as a country, is the only one maintaining a heavy trade surplus with China, the present figure being $114 billion; even the economic powerhouse of Singapore has a trade deficit with China. Taiwan’s miracle can be seen from the fact that it buys a lot of weapons from the US and still maintains a trade surplus of $150 billion with the US. Indians may explain that away by pointing to the world’s strongest cutting-edge chip-making company, TSMC, being in Taiwan. We have been late starters in technology and till recent times, processed petroleum products, gems, jewellery and chemicals constituted a large part of our manufactured exports. Software has dominated our service sector exports but we have not yet moved onto the cutting edge. The example of Taiwan shows that technology leadership boosts exports to friends as well as enemies. As a democracy, India is a natural candidate for trade relations with other democracies. Yet, in international relations, a question will always be asked before the formation of any partnership – What is it, other than democracy, that we bring to the table?

If India wants to stop feeding the Chinese dragon and refurbish its strategic autonomy, this is the question to which we should have a credible answer. Gone are the days of the advantage of lower wages or even of the ease of doing business. In order to boost our exports, we have to do what we have done in the case of the Brahmos missile; we have to show to the world that what we offer is unique and it does not come with a dent on the buyer’s geopolitical autonomy. Ukraine did that with anti-drone technology and nations made a beeline to its door. Similarly, for imports, we have to demonstrate that we are exercising a choice and not a compulsion. Absent that, our strategic autonomy shall remain in the realm of an ambitious goal. 

( DAILY WORLD)