
Why in News?
The topic is relevant due to the growing focus on how emerging economies, including India, can navigate the challenges of global protectionism, automation, and shifting geopolitical dynamics. These issues have become critical as countries adopt measures to protect domestic industries, address supply chain dependencies, and respond to technological and environmental pressures.
Key Topics:
- Emerging Economies
- Protectionist Barriers
- EU’s Critical Raw Materials Act
- World Trade Organization (WTO)
- China+1 Strategies
- Brexit
- EU’s Carbon Border Adjustment Mechanism (CBAM)
- International Energy Agency
- Data Localization
- Regional Comprehensive Economic Partnership (RCEP)
- PM Gati Shakti Initiative
India-Specific Issues:
- Wheat and rice exports
- India-Australia Economic Cooperation and Trade Agreement
- Atmanirbhar Bharat Initiative
Factors Driving the Rise of Protectionism in a Globalized World
- Economic Nationalism and Deindustrialization
- Loss of manufacturing jobs in developed economies drives protectionist policies.
Examples:
- Inflation Reduction Act (USA, 2022): Subsidizes domestic green technology production.
- EU’s Critical Raw Materials Act (2023): Reduces dependency on imported raw materials.
- Geopolitical Rivalries and Strategic Decoupling
- Escalating US-China tensions spur economic decoupling.
Examples:
- The US restricted China’s access to advanced semiconductors (2023).
- China retaliated by limiting gallium and germanium exports critical for chip manufacturing.
- Supply Chain Vulnerabilities Exposed by COVID-19
- The pandemic highlighted over-dependence on global supply chains.
Examples:
- India banned ventilator exports in 2020.
- WTO reported a 5.3% decline in global trade in 2020.
- Rising Inequality and Populism
- Economic inequality fuels demands for protectionist measures.
Example:
- Brexit (2016): EU trade policies blamed for manufacturing job losses.
- Environmental and Climate Concerns
- Environmental policies often mask protectionism.
Example:
- EU’s CBAM (2023): Tariffs on carbon-intensive imports.
- Technological Dominance and Digital Protectionism
- Nations prioritize data control and technological sovereignty.
Examples:
- Data Localization Rules (India, 2022): Mandates local data storage.
- EU Digital Services Act (2022): Regulates digital marketplaces.
- Protection of Domestic Agriculture
- Tariffs and subsidies shield farmers from global competition.
Examples:
- US Farm Act (2018): Allocated $428 billion in subsidies.
- India invoked WTO’s peace clause (2024) over excessive rice subsidies.
- Inflationary Pressures and Economic Instability
- Export bans stabilize domestic prices.
Examples:
- Indonesia’s palm oil export ban (2022).
- India’s wheat and rice export restrictions (2023).
- Weakening Multilateral Institutions
- Decline in trust in global institutions like the WTO.
Example:
- WTO’s Appellate Body has been non-functional since 2019.
- Domestic Political Pressures
- Domestic politics often drive protectionist measures.
Example:
- The US warned of 100% tariffs on BRIC nations over dollar dominance concerns (2024).
Issues Arising Out of Protectionism for India
- Export Competitiveness and Market Access
- Protectionism restricts India’s access to global markets.
Example:
- Merchandise exports fell by 5% in 2023, particularly textiles.
- Supply Chain Disruptions
- US-China semiconductor tensions affect India’s electronics sector.
Fact: India imports over $12 billion in electronics from China annually.
- Impact on Domestic MSMEs
- CBAM impacts Indian steel and cement exports.
Example: Indian steel faces a Euro 173.8/tonne duty in the EU.
- Inflationary Pressures from Import Barriers
- Restrictions on imports raise domestic prices.
Example: Fertilizer prices rose due to Russian export restrictions.
- Reduced FDI Inflows
- Protectionism discourages foreign investments.
Fact: FDI inflows to India dropped by 43% in 2023.
- Diversion of Resources to Trade Disputes
- India is involved in WTO arbitration cases.
Is Atmanirbhar Bharat Protectionist?
Arguments Suggesting Protectionism:
- Increased tariffs on electronics and solar panels.
- PLI scheme allocated ₹1.97 lakh crore for domestic manufacturing.
- Withdrawal from RCEP (2019).
Counterarguments:
- Global Competitiveness: Mobile exports reached ₹90,000 crore in FY 2023.
- Strategic Resilience: Focus on semiconductors and critical sectors.
- Selective Liberalization: FTAs with Australia and UAE showcase balanced trade integration.
Measures India Can Adopt
- Strengthen Strategic Trade Partnerships
- Negotiate reciprocal FTAs focusing on critical sectors.
- Promote Selective Liberalization
- Reduce tariffs on essential manufacturing components.
- Build Resilient Supply Chains
- Diversify imports under the China+1 strategy.
- Enhance Multilateral Engagement
- Reform WTO dispute resolution mechanisms.
- Strengthen Domestic Infrastructure
- Invest in logistics under the PM Gati Shakti initiative.
- Create Sector-Specific Safeguards
- Introduce anti-dumping duties for vulnerable sectors.
- Leverage Digital and Services Trade
- Expand Global Capability Centers (GCCs).
- Adopt Climate-Conscious Trade Policies
- Align with global green market standards, including CBAM.
Conclusion
The rise of protectionism presents significant challenges to India’s trade and economic opportunities, including restricted market access, supply chain disruptions, and increased trade barriers. These challenges can potentially hinder India’s export competitiveness, discourage foreign direct investment, and strain domestic industries reliant on global supply chains. However, India can navigate these obstacles by adopting a balanced and strategic approach.
This includes fostering globalization through mutually beneficial trade partnerships, negotiating Free Trade Agreements (FTAs) to secure market access, and leveraging its comparative advantages in key sectors like IT services and pharmaceuticals. Simultaneously, enhancing domestic self-reliance through initiatives like Atmanirbhar Bharat and the Production-Linked Incentive (PLI) scheme can build resilience in critical industries.
Strengthening infrastructure under programs like PM Gati Shakti, diversifying supply chains with China+1 strategies, and aligning with global environmental standards such as the EU’s Carbon Border Adjustment Mechanism (CBAM) are essential steps. By balancing the pursuit of globalization with targeted self-reliance, India can not only mitigate the risks of protectionism but also position itself as a competitive and sustainable player in the global economy.