India's tariff gap has widened over China over two years on the trot

India's average effectively applied tariff rate across all products is in double-digit territory

India’s tariffs have been increasing relative to China for two years straight leading up to the pandemic.

India’s average effectively applied tariff rate across all products was 10.21 per cent, compared to 5.39 per cent for China, shows data from the World Bank. Both countries have been bringing it down since the turn of the millennium. The last two years have shown a divergent trend for the last two years, ending 2019, for which data is available.

India recently raised the issue of China’s claim to easier norms as a developing country at the World Trade Organisation. It pointed out that China is now an upper-middle-income country. It was thus questionable to avail of benefits under the developing country tag. China said that there was no uniform definition of developing countries. It considered itself still part of the group relative to its position behind the more developed nations of the world. China completed 20 years as a member of the World Trade Organisation in December.

Its per capita gross domestic product (in current US$ terms) has gone up from $1,053.1 in 2001 to $10,434.8 in 2020. India’s has gone up from $451.6 to $1927.7 in the same period. WTO Director-General Ngozi Okonjo-Iweala had said that global trade integration had helped drive China’s growth and development in a statement released to mark the 20th year of its becoming a WTO member.  

A Business Standard analysis of global export numbers shows that China has been able to capture a larger share of global trade over the last twenty years. It now has the world’s largest share in export of goods and services. It overtook the United States of America in 2017. It accounted for a 10.6 per cent share in 2019 compared to 10.2 per cent for the US. China’s 2020 share rose to 12.1 per cent. The US share was down to 9.5 per cent.

China’s rising trade competitiveness has seen it maintain higher labour force participation than India over the last twenty years. China had a labour force participation rate of 76.66 per cent in 2001 which was higher than India’s 57.64 per cent. China’s number for 2020 was 66.82 per cent compared to India’s 46.29 per cent.  Labour force participation can improve with trade openness, according to a February 2019 paper entitled ‘The impact of trade openness on labour force participation rate’ from authors Seyed Ali Madanizadeh from Iran’s Sharif University of Technology and Hanifa Pilvar from the United Kingdom’s Queen Mary University of London.

“We find that 10 percentage point increase in tariff rate lowers the participation rate by 4–6 percentage point and this relationship is more severe in the long run. Finally, we show that changes in labour force population accounts for about 27% of changes in the unemployment rate following a trade liberalization,” it said.

The labour force participation rate showed the proportion of people aged 15 years and above who were economically active. A similar female estimate showed a slightly widening gap. China was 70.33 per cent compared to India’s 30.67 per cent in 2001. China’s number for 2019 was 60.57 per cent. It was 20.79 per cent for India.