While Xi and Putin are the torch bearers of the protectionist trade ideology, Trump, and Modi are furthering the trend, promoting the protectionist policy to safeguards their economies.
Trade wars, slapping steep tariffs and duties, currency manipulation; and the shrinking support for free trade are significant measures for increasing protectionism in global trade. These policy decisions are actively driving the protectionist approach to trade for major world powers. And this profound trade gap among the major economies is constituting a global slowdown.
Today, the definition of globalization is also being affected by the world’s growing hegemony and the changing geopolitical landscape in world politics. New influencers are trying to drift the global economy to their advantage.
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The major economies when finding potential markets for their services and products opt for free trade agreements to facilitate trade and capture foreign markets. Nevertheless, when they find new countries emerging and challenging their hegemony, they see them as rivals.
Subsequently, when these new superpowers reach greater heights, it is perceived as placing the older ones in a disadvantageous situation.
While protectionism is politically motivated as a defense measure to safeguard a country from outside attacks, in the long run, it proves to be destructive, as seen with various economies.
The Early Movers
Trade Protectionism by Russia
Arguably Russia and China precede all else in enabling protectionist regimes. US companies also face a number of trade barriers in Russia through different tariff and non-tariff impositions on exporting goods.
Import of alcoholic products from Russia is overall a difficult task to complete which requires custom duties, excise taxes and value-added tax to be paid in advance using bank deposits and guarantees. But under this rule, the reimbursement process is very slow.
Furthermore, US companies accuse the Russian government and EEC (Eurasian Economic Commission) of increasing unnecessary complexity that leads to increased cost and delays on their imports. Russian authorities also pose major obstacles through technical regulation and providing certification to the product after testing.
The Russian government also made it mandatory for all Russian aircraft and imported cars to be equipped with an indigenously developed Russian navigation system called GLONASS (Global Navigation Satellite System) as an alternative to US-based GPS. So as per TR TS018 regulation, it made mandatory for aircraft imported from other countries capable of supporting GLONASS.
Trade Protectionism by China
From 1950-1973 China remained socialist, and so most of the industries were state-owned. However, in 1978 China’s economy under Deng Xiaoping saw economic reforms towards privatization. China also opened itself to foreign investment to salvage the falling economy.
From the 1980s-1990s China also allowed privatization in state-owned industries and lifted the price control mechanism and protectionist policies. Consequently, it saw unprecedented growth with the economy increasing by 9.5% a year between 1978 to 2013.
However, President Xi Jinping opposed and rolled back many of the Deng era reforms. The government also started reasserting control over its economy. China increased its control over state-owned and private enterprises. Moreover, recently around 288 private companies have been forced to revise their company’s charter. The firms have to allow communist party influence in management and reshape work-ethics under the party’s guidelines.
This asserting policy also included Hong Kong companies, who are now redrafting laws to formally establish communist party committees. Furthermore, in 2018, Minxin Pei (an expert on governance in China, US-Asia relation and democratization in developing nations) said that since the 1980s reforms the Chinese economy in contemporary time is the least open.
The US-China trade war has resulted in the global economic slowdown and started imposing tariffs on each other. The US also accused Chinese government protectionist policy of the “Made in China 2025” programme to make China a manufacturing hub.
Trade Protectionism by the USA
The perils of protectionism in the US were triggered in the 2016 Presidential elections campaign when Trump promised to protect the US economy, its trade, and the most important to defend the US workers from the “carnage of bad trade deals”. In short, the “America First Economic Policy”.
Since 2018, the US has slapped steep tariffs on imports of steel, paper, aluminium products, domestic electronic equipment, solar panels, and agricultural products from China. The US accused China of stealing American Intellectual Property and imitating its products; and also subsidizing exports that led to tariff imposition by both the countries.
Furthermore, Trump also imposed stiff levies on EU, Canada, South Korea, and Mexico through his protectionist measures. He also chose to exit from the world’s oldest free trade agreement- NAFTA and Trans-Pacific Partnership.
Trade Protectionism by India
India is a growing economy and needs to build its manufacturing industry. Trade tariffs and protectionist approach gives new and vulnerable industries some time to develop their goods on the international competitive lines.
The global economic slowdown and trade deficit forced the Indian government to opt for not joining RCEP. The RCEP could have disturbed the Indian domestic market interest because of cheap Chinese manufactured products and Australia-New Zealand eyes on the Indian dairy market.
India only exports 20% to the RCEP countries. But the import accounted for 35%. India trade deficit with all the RCEP nations amounted to $105 billion in 2018-19, China alone counts $54 billion.
However, China recently started indulging itself into trade agreements to salvage its falling economy. The RCEP agreement will strengthen the Chinese economy and cheap products to flow in RCEP market. But other RCEP member companies will find it difficult to compete with the Chinese state-owned giants.
How trade protectionism is affecting global trade
- Higher prices for consumers to purchase the same foreign products.
- Reduction in market accessibility for manufacturers or producers. This damages profits, investments, and jobs, especially for developing nations.
- No competitive market will lead to outdated products, which consumers and companies will still buy. It will further lead to the contraction of demands and consecutively lower consumer surplus.
- If protectionism leads to total restriction of the trade then it will lead to illegal export and import of goods, which will restrict the government’s incomes further.
- As per the Global Trade Alert 2017 report, over 50% of exports from G20 countries were subject to more harmful trade measures.
Therefore, growing protectionism in global trade is more towards acquiring political gains and then about safeguarding their economies and vulnerable industries from international competitors. The growing antipathy has triggered the global economic slowdown, which has rather ignored the need of the end consumers.