Protectionism: Overlooking benefits from trade

By Pratyaksh Arneja

The Department of Economic Affairs has recently published the Economic Survey for 2016-17. Compiled under the aegis of the Indian Ministry of Finance, the report outlines major macroeconomic developments and analyses different sub-sectors of the economy. While the survey is an extremely comprehensive primer on domestic affairs, it also renders invaluable insight on India’s financial trajectory on the global front.

To be more specific, the report touches upon India’s rising trade deficit and its protectionist tendencies in the light of international trade. Protectionism entails policies that restrict international trade with the sole intent of protecting domestic businesses from foreign competition. Essentially, this can manifest in the form of tariffs and quotas among other measures. India’s growing protectionist stance can be corroborated by government’s decision to boost the domestic steel industry with the help of trade restrictive measures last year.

Global protectionist attitude

The protectionist attitude is not new and is certainly not exclusive to India. Populist leaders such as Geert Wilders (the Netherlands), Marine Le Pen (France), Nigel Farage (UKIP), and Donald Trump (USA), stressed on the necessity of protectionism. Of course, the populists’ worries were predicated on political paranoia instead of economic foresight.  

Amidst the growing protectionist status quo, the survey also sheds light on a number of trade restrictive measures that have been continually advocated by G20 countries during the review period. Several types of non-tariff barriers including restrictions on visas and movement of persons have been put in place. According to the World Trade Organisation, a total of 42 of trade restrictive measures were implemented by G20 economies from October 2016 – May 2017. This is striking considering the already deteriorating stature of globalisation and free markets.

The way forward

India’s current economic orientation is a combination of free-market liberalism and protectionist policies. Although, their influence and extent vary when we examine different states and industries individually. Historically, India’s successful economic disposition can be majorly attributed to its economic liberalisation policies after 1991. For a process that helped India to cement its place as one of the fastest growing economies, it is worthwhile to look at why globalisation is worth saving in the light of India’s current options.

For a start, India can strategically collaborate with countries which are strong defenders of free market and liberal trade policies. Since Donald Trump places his trust in his “country first”, it is befitting to rule out the United States as the leader of the free world. Having established that India can now vest its capacity geopolitically; by collaborating with its European and East Asian counterparts.

The German connection

Being one of the largest trading partners of the European Union (EU), India has played a crucial role in facilitating cultural and industrial ties with Germany, the Netherlands, and Belgium. The relationship between India and the EU’s largest economy, Germany, has been marked by resource sharing in the fields of science, defence, and education. 

While India can utilise quality German exports with limited regulation, Germany can bank upon India’s high skilled immigrants in financial, aerospace, and IT service(s). This collaboration is possible only if both entities work together with limited restriction. By ensuring this, India can be assured that ties with the rest of the EU members  (including France, Spain, Baltics) can be strengthened significantly in the near future.

Countering protectionism

As far as East Asia is concerned, India can work strategically with Japan and South Korea to counter protectionist efforts in the West. India is already in the process of developing infrastructure projects in its northeastern states with Japan. Moreover, start-ups in the e-commerce and fin-tech space have continually received funding from major Japanese financial firms such as Nomura holdings and SoftBank for the last couple of years. If this continues, both entities can reap benefits of the coordinated partnership.

With ideological differences rising among Europe and the United States, and East Asia’s distrust of Washington, India can move the tide in its favour. However, it must not sway towards economic extremes. It may all be a hassle but globalisation is worth the effort.

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