India's toy tariffs cut Chinese dependence in a sector too small to dent a $112bn deficit

On the BBC's figures, India's toy trade swung from a deficit of roughly $171mn in 2020 to a surplus of about $100mn this year ^[5]. The BBC describes the import fall as a third. Its own numbers, nearly $300mn down to $100mn, put the decline at about two-thirds ^[3][1]. The broadcaster credits the pairing of higher customs duties with quality control standards ^[6] and calls toys a rare exception in India's attempts to rebalance trade with China ^[7].

Set against India's account with China, the result is small. Toy imports fell by about $200mn ^[2]. India's deficit with China widened by $68bn over the same years ^[3]. Even if every dollar of the toy cut had come out of Chinese supply, it would equal about 0.3% of that widening ^[4].

When the duties went up, retailers argued that domestic firms could never match foreign-made toys ^[2]. In toys, the BBC's account says they were wrong ^[6]. China had held 70% of the Indian toy market ^[5]. The report does not give its current share, and it does not separate how much of the result came from the duty and how much from the quality rules.

The retailers' doubt has more force where India's dependence now sits. Electrical machinery and electronics make up 36% of imports, and machinery and mechanical appliances another 21.7%, according to the Observer Research Foundation ^[16]. India has cut its imports of finished smartphones and solar equipment, and it now makes more than a quarter of the world's iPhones ^[14]. "Yet, production remains largely assembly-based and depends heavily on imported components, particularly from China," said Ajay Srivastava of the Global Trade and Research Initiative ^[15].

A duty on a finished toy taxes a competing product. A duty on an imported component taxes the Indian plant that needs it. "Their interruption would not merely affect consumption; it would disrupt production itself," said Soumya Bhowmik, a fellow at ORF, of Chinese inputs ^[17]. He argues this reflects India's difficulty in replacing those inputs with local production ^[18].

The pressure from China's side is rising too. China's trade surplus is expected to top $1tn for a second straight year as manufacturers with excess capacity sell abroad cheaply ^[19]. Srivastava said goods are also heading to India as "Western markets impose tariffs and other restrictions" ^[20]. "India's economic dependence on China continued to deepen while political, security, and investment ties were at their lowest point," Kevin Zongzhe Li of the Asia Society Policy Institute told the BBC ^[9].

I think the toy case answers a narrower question than it first appears to. It shows Delhi can hold a steep duty on a finished consumer good long enough for domestic production to replace most of what was imported ^[1][6]. For an operator, moving final assembly into India this quarter lowers exposure to that kind of duty on the finished good. The phone record shows the cost that arrives next quarter: the dependence on Chinese parts moves into the Indian plant along with the assembly line ^[15].