A few days ago, we banned a lot of Chinese stuff. Like everybody else I was super thrilled that this move will make us more self reliant. But then, I read Basic Economics by Prof. Thomas Sowell and it changed my mind. And then I re-thought about the whole argument about banning Chinese goods. 

Here is an imaginary conversation between the patriot in me and the economist in me. 

Patriot: How dare the Chinese intrude upon our territory! You know, it’s damn right that we banned the Chinese apps! In fact, we should ban everything Chinese, even that Benedict fellow…

Economist: I respect your sentiments. But as an economist, let me ask you this: – “Would you prefer to be better off than before or worse off than before?”

P: Better off, of course.

E: And if you had only the following two choices, what would choose: Both India and China being better off or both India and China being worse off?

P: You are tricking me into this. I won’t answer.

E: Oh come on, don’t be such a baby. Choose one.

P: I guess, I would choose for both India and China to be better off. And I chose only because you didn’t give me a choice where India could be better off and China worse off.

E: Well done!

Now, let me narrate a real story. You remember our friend who has this outdoor wedding venue? Well, guess what? When he was setting up his business, he went to China and shopped for Rs 1 Crore worth of goods for his business. He shipped them to India and paid heavy customs duty on it. And yet he said, it was worth it.

P: Stupid guy! He should have spent that money on Indian products and Indian businesses.

E: I am not finished yet.

Now, our friend set up his business in India, which had a roaring success and he ended up creating wealth for himself in India, creating jobs for a lot of Indian people and adding value to the Indian society.  Even during the lockdown and the pandemic, he kept paying salaries for all his staff.

Now, imagine if he didn’t buy that merchandise from China, he would have spent say 1 year looking for similar stuff or getting them custom made in India. We pay for things with money and time, but count only money. But isn’t time also money?

Say, if he had gotten the merchandise made in India, he would have foregone 1 year’s worth of revenue; his employees would have foregone 1 year’s worth of salaries and the India government would have lost 1 year’s worth of taxes. So, don’t you think it was in India’s own economic interest that he imported merchandise from China and used that to create all the wealth and the value in India, for India?

Another way to look at it is: Is there more value in the raw materials or in the finished goods? Of course in the finished goods. Therefore, by importing raw material from China our friend focused his resources on the finished goods. Isn’t that also good for India?

P: I get it. I was only thinking of one thing- the lost revenue. You know, that is what the media kept saying.

E: Yes. That is all the mainstream thinks about. But there are second order effects and third order effects of these decisions. It’s easier to pretend that they are not there.

Wealth creation is not a zero sum game. Both – we and our suppliers can create wealth for ourselves. So, tell me now, is it in India’s best interest to ban Chinese goods? Do we want to spend resources creating the raw material or the finished good?

Another way to put it would be- would you rather build the next killer app or the set up a me-too smartphone assembly line? The killer app, of course.

P: I don’t know what to say…I don’t feel so strongly  about it anymore.

E: Don’t bother, my friend. You can be economic with your words.

See, even I am a patriot. And I want us to make great economic progress. And for that I want us to channelize our resources in producing maximum value to ourselves. I am willing to forego some pride for that because the end goal matters to me more.

Remember, I asked you would you be better off or worse off? And you said, better off. Therefore, isn’t it in our best interest that we let them do what they do best, so we can focus on doing what we do best. It’s exactly like the eye surgeon allowing someone else to wash his car. Or as Talmud put it philosophically -“Living well is the best revenge”.  Because by choosing to live well, we can channelize our resources in the betterment of self. What difference does it make if the other guy is better off or worse off. If we love ourselves and our country, we should choose to be better off!

Happy Independence Day!

Jai, Hind!