Protectionism is the process by which countries favour and protect their domestic industries from competition from abroad by erecting either tariff or non tariff barriers. Global Trade Protectionism in developed countries can have a cascading effect on developing countries like India.

 

Recently, The United States announced that it will impose tariffs on the import of aluminium and steel. The World Trade Organization has warned that Mr. Trump’s trade war could lead the world into another recession.

 

Reasons:

 

The stress in the developed economies which were proponents of free trade had been building up over time. The workers of the manufacturing industry were finding themselves at the receiving end of the change in the global supply chain.

 

The reactions in USA is due on distribution of consequences of globalisation. For eg. When Indians buy ipad/iphone, 70% of value accrues to Apple Company in USA which does not manufacture anything in USA and remaining 30% goes to China, Malaysia, Taiwan etc. where manufacturing is done. Also, the 70% going to USA goes to limited class of people who are involved in marketing, financing and intellectual capital. Thus, the people losing out were the workers in the manufacturing industry there. That’s why US GDP is not affected that much by it, but distribution of GDP within USA has led to populist upsurge.

 

Mr. Trump hopes to protect American manufacturers who have failed to keep up with global competition through the means of restrictive tariffs.

 

Issues:

 

(i) Negatively hurt India:

 

India is going to be hurt by USA policies on services. For eg. The rules on H1B visas which are being contemplated say that it will be particularly strict for H1B visas of companies where a large proportion of workers are H1B as well as where large proportion of workers work outside the company but not on companies inside USA. So, if google wants to hire an Indian engineer, it will be easy for it than for the Indian companies like Infosys or TCS to take an Indian engineer there.

 

(ii) Effect of technology:

 

Free trade is about competitive cost advantages which relates to the factors of production. If technology enables traditional economy which is not at an advantageous position wrt FoP earlier but can acquire the advantage because of the technology development, then it could afford to stay out of globalisation and grow.

 

(iii) Robotics and automation, artificial intelligence are now being placed in the cloud by IT companies and can be accessed from anywhere in the world. This means that location is not going to be an advantage. So unless India’s IT software industry which was a service provider till now embraces technology of this kind, it might feel the harsh heat of technological upgradation.

 

(iv) Thus to minimise the effect of protectionism, India will have to embrace the highest quality technology which is the requirement of digital economy.

 

(v) In terms of capital inflow, India is not highly dependent on the global economy. The globalisation was a trend which was at pace and India had to be a part of it to be integrated with world. Now when the globalisation is showing reverse trend, India will not suffer much as it was just half way through to gain the benefits of globalisation.

 

Suggestions:

 

  • India should learn to use the technology rather than becoming its victim.
  • India should not underestimate its own bargaining strengths. If India wants its IT professionals in USA then USA also wants easier access to India’s finance and insurance market.
  • Ordinary consumers of all countries are likely to lose as a result of any trade war between countries.

 

Instead of retaliating with more tariffs, which could cause the current dispute to spiral into a full-fledged global trade war, the U.S.’s trading partners must try to achieve peace through negotiations.

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