The Dalai Lama effect on trade with China

Paying a visit: The Dalai Lama Effect on International Trade

By Andreas Fuchs and Nils-Hendrik Klann, University of Gottingen, Centre for European Governance and Economic Development Research

The Dalai Lama is a thorn in the side of the Chinese authorities. It is no secret that China has frequently issued thinly veiled threats to countries that support him. That is because the 14th Dalai Lama’s position as the spiritual head of the Tibetan community and his immense prestige are seen as threats to the Chinese occupation of Tibet.

Given China’s increasing clout in trade, the arm-twisting often takes the form of threats against playing host to the Dalai Lama as that could affect a country’s trade relationship with China. Since China is in many respects not a market economy, its government can easily influence trade patterns based on political preferences.

The authors point to France, which was crossed off the travel agenda of two Chinese trade delegations in 2009 in retaliation to a meeting between French President Nicolas Sarkozy and the Dalai Lama. It was only after a declaration by France that it recognized Tibet as a part of China that normal ties were restored.

This paper attempts to answer the question whether ties with the Dalai Lama have actually harmed trade between China and other countries. The authors studied exports to China from 159 countries between 1991 and 2008 to determine whether there’s a Dalai Lama effect on trade with China.

The results of the study show that exports to China from partner countries indeed fell after a nation hosted an official reception for the spiritual leader. This was, however, seen only in the Hu Jintao era (2002-08)—which is as expected because that was when China’s trade clout increased substantially. The authors found that depending on the method of estimation used, exports to China decreased by 8.1% or 16.9% after a country hosted the Dalai Lama. Interestingly, though, the effect wears off in two years.

The only product group found to have a consistently negative effect after Dalai Lama meetings across samples and estimation techniques is machinery and transport equipment. The authors say this is because the export of these products is closely associated with the state of political relations between countries as negotiations over the purchase of such goods are commonly carried out during high-rank trade talks between national representatives and trade delegations.

Given China’s increasing influence, leaders of many nations have chosen the path of discretion over valour. As the authors point out, in an interview conducted in 2008, the Dalai Lama himself said that while many politicians meet him before they become a minister or a president, they tend to avoid seeing him after taking office so as not to endanger trade ties with China. The Dalai Lama concluded that “economic relations with China gain the upper hand”.

What is to be done?

“Internationally coordinated receptions of the Dalai Lama by political leaders or even joint meetings are a possibility to reconcile economic interests with the demands to receive the Tibetan leader,” the authors suggest. “Such a strategy may reduce China’s scope to play one trading partner off against another.”

But since the effect on trade of meeting the Dalai Lama wears off after two years, perhaps the most appropriate response is one offered by the Dalai Lama himself: “There is a Tibetan saying: some wounds in the mouth recover by themselves.”

Posted in: Dalai Lama