Rise and Rise of Protectionism

Rise and Rise of Protectionism

11 Jul 2019 05:38 PM
 

Today the primary reason why the global economic growth is at a thwarted state is due to the rise of protectionism. It is potentially affecting the entire economic sentiment and this is forecasted by the market analysts to further intensify with the ongoing Trade war between US and China and others. Speaking from India’s perspective, the US protectionist strategy has definitely affected the Indian labour markets as well. This is mainly because, as maximum products exported under the Generalised System of Preferences (GSP) comprise of the micro, small and medium enterprises which are all labour-intensive sectors. Repeatedly, there is external shock witnessed relating to imminent withdrawal of duty-free access to US markets and this is a huge cause of concern for the Indian economy. In spite of positive prospects, the export sectors of India are unable to compete with the other nations globally due to the jitters caused by the external shocks prevailing in the market.

The Prime Minister of India has always sharply criticized rising US protectionism under the Trump administration. In the recently held G20 summit in Japan, Indian PM put forward a five-point approach related to approaches in tackling common challenges facing the world. Among this five-point approach, PM Narendra Modi has categorically mentioned protectionism and Unilateralism at global financial organizations like the WTO. “Unilateral decisions and rivalries are overshadowing rule-based multilateral international trade systems. “On the other hand, the lack of resources is reflected in the fact that there is a shortage of an estimated USD 1.3 trillion in investment for emerging market economies,” said PM Modi.

The Indian Prime Minister reiterated that it was the ill effects of unilateral decisions that worked as the bone of contention and should, therefore, be addressed by the coordination between the BRICS countries. “We need to emphasize on the necessary reforms in international financial and business institutions and organizations for improving multilateralism,” said PM Modi.

Lately, President Donald Trump on twitter yet again lashed out at India, saying India “has long had a field day” with tariffs and such was ‘no longer acceptable.’ This has again raised concerns and the direct effect of such harsh statements indicates the clash between the two major economies over import tariffs can affect each other’s product.

Prior to a day before the G20 meeting with PM Modi, The US president had tweeted “I look forward to speaking with Prime Minister Modi about the fact that India, for years having put very high tariffs against the United States, just recently increased the tariffs even further. This is unacceptable and the tariffs must be withdrawn.” This tweet was in relation to the tariffs imposed by the Indian Government on 28 goods in retaliation to US’s termination of preferential access for Indian products from 5’TH June.

Taking a Panoramic View

With the rise of protectionism, it is not just the emerging economies which are badly getting affected but with it, the advanced economies are also facing a similar heat. Countries across the globe are using protectionist policies to mainly safeguard national companies against competition from foreign firms. Protectionist policies also allow countries to protect employment in the short term by defending business segments which otherwise remained fragile due to a slowdown in the international business or stood at a less competitive position.

The trend towards extended protectionism policies has adversely affected a large number of countries. When evaluated, one finds-

  1. The rate at which the US has imposed import tariffs since 2009 has almost doubled and this has sharply increased in 2016-2018.
  2. There has been a major fall in exports from partner countries to that of the targeted countries due to the imposition of higher US import tariffs.
  3. Majorly affected sectors are the transport and machinery industry as they involve a certain kind of complex multinational production chain.

Countries such as Germany, Japan, and the United States stand as the most affected countries due to the impact of the indirect effects of US tariff barriers on Chinese automobile exports. Singapore is yet another country which is expected to be badly hurt among all the major South East Asian economies due to the trade tariffs imposed by US and China countering such action of US by imposing further tariffs on US goods. Singapore is predominantly an export-dependent country and the rise of protectionism movement has hit the Singapore economy witnessing a slide from 3.1 % growth last year to 1.9% this year. (Data Source: Today online Report)

As per a report, Vietnam, Taiwan, Chile are three countries which have benefitted from US-China trade war. For India too, the spat of the ongoing trade war is mixed baggage for on certain accounts, higher tariffs imposed by the US has affected India’s economic growth. However, it was witnessed that, the Indian economy also benefitted by a small margin of 0.2% growth in the total 2019GDP on account of US-China Trade War. (Data Source- Business Standard Report)

In order to protect local manufacturers from the steep competition posed by Asian countries, emerging markets such as Brazil and Argentina have also implemented tariffs and other trade barriers. India too in March 2018 announced its plans to increase import duties for around fifty products as a measure to impose trade barriers. However, countries like Vietnam, Cambodia and the Philippines fall in the exception category as they have refrained from imposing trade barriers and have decided to opt for open trade policies.

The Russian government is also worried about the reduced prices of its resources such as oil, mineral ore, coal, etc. due to the trade tussle between China and the US. However, the trade war has helped in effacing the differences between China and Russia and helping Russia, become a major trading partner of China. China has also reached out India and other SCO (Shanghai Cooperation) states to stand united against the protectionist policies of US President Donald Trump. While China is the primary target for various protectionist policies, India and South Korea also falls among the top 15 countries that stand affected by protectionist policies.

Heading towards the European countries, the implications of US protectionism has a knock-on effect. US imposing a 25% duty on European Steel and that of 10% on the aluminium exported to the US have badly affected Europe’s economy. This has clearly raised a lot of anger among the European leaders and this has even led EU officials challenging the decision of high tariffs at the WTO’s trade court. The biggest European aluminium exporters to the US are Germany (29% share) followed by France (15%), Italy (12%), Austria (9%) and the UK (7%). (Data Source- Report by the Conversation)

Trump administration’s decision to stick by protectionist policies is sharply criticized across the world and it is believed to set in broad direct and indirect negative effects not just for European countries but for the world economy in length.

Summation

As a result of the increase in protectionist policies, it looks like the old rules that governed global capitalism is fast becoming irrelevant. The old orders of trade policies are breaking down and giving rise to a new order. Countries across the world are slowly tilting into bilateral or regional trade deals as opposed to global agreements. However, the cause of concern is, even the Western companies seem to be unprepared for the global tilt towards new trade rules. Companies such as Apple and Unilever have however realized the importance of the eastern power shift and are therefore preparing themselves accordingly.

In general, the widespread global protectionism will bring in more loss as all the benefits that were derived from previous trade liberalization measures are getting affected by the rising use of protectionist policies. Countries will also witness a fall in the global real income and rise in protectionism will also impede the global output of goods and services and thereby result in reduced trade.

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