Rising protectionism in trade: In a world ravaged by the Covid-19 pandemic and the year-long Russia-Ukraine war, multilateralism is facing the biggest threat since the World War II. The biggest challenge to multilateralism is the rise in protectionist policies in both the developed and developing nations. During its G20 presidency, India is expected to build consensus towards agreements and ensure results, World Trade Organization director general Ngozi Okonjo-Iweala said on the sidelines of the G20 foreign ministers’ meeting. The moment is not lost on New Delhi as well with Prime Minister Narendra Modi admitting that multilateralism is in crisis and that global governance has failed in fostering international cooperation and preventing wars.
The cooperation among G20 leaders is of utmost importance at a time when the world is reeling under several geopolitical shocks. However, leaders have been stuck in a deadlock and were unable to agree on a joint communique, over differences between Russia and the West on the Ukraine crisis. India in its chair summary noted that Russia and China did not agree to sections that referenced the war in Ukraine.
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Apart from the countries that are in desperate need of economic intervention such as Pakistan or Sri Lanka, no others are interested in solutions towards globalisation.
The COVID-19 pandemic has led to an increase in protectionist tendencies in many countries because of concerns about supply chain disruptions, shortages of critical medical equipment and supplies, and the need to support domestic industries and jobs. The trend began with export restrictions on medical equipment and supplies such as masks, gloves, and ventilators. Some of the largest producers put restrictions on exports of these goods in order to ensure domestic supply.
The panic created by the pandemic manifested in the form of travel restrictions and border closures. Most countries restricted travel to limit the spread of the deadly virus, leading to reduced trade and disruption of supply chains. The pandemic also led to a rise in economic nationalism and a focus on domestic production and supply chains. Some countries rolled out policies to ensure production of critical items domestically to reduce reliance on unreliable foreign supplies.
The pandemic contributed to the rising trend of protectionism in world trade. Protectionism refers to the trend towards countries imposing trade barriers or restrictions on imports in order to protect their domestic industries from foreign competition. There has been a rise in the use of protectionist measures such as tariffs, quotas, and subsidies that make foreign goods and services more expensive. Some countries resorted to non-tariff barriers such as technical regulations, safety standards, and licensing requirements.
Regional blocks and globalisation
Regional trade blocks have become popular in recent years as countries seek to deepen economic engagement with neighbouring countries to promote regional stability and growth. Some of the largest regional trade blocks are the European Union, the North American Free Trade Agreement (NAFTA), and the Association of Southeast Asian Nations (ASEAN).
The Regional Comprehensive Economic Partnership is the latest major entrant in the world of regional trade blocks. RCEP is a free trade agreement covering nearly a third of the global population and GDP. The members of this grouping are the ten members of ASEAN (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam), Australia, China, Japan, South Korea, and New Zealand.
The RCEP looks to cut tariffs, promote trade in goods and services, and enhance investment flows among member countries. The RCEP is expected to provide significant economic benefits for participating countries, and seen as significant step towards greater economic integration in the Asia-Pacific region.
Regional trade blocks offer a number of benefits to member countries such as increased trade, investment, and economic growth. They also bring in greater political and social stability. Regional trade blocks can create an efficient business environment that benefit both consumers and producers. However, they lead to diversion of trade away from countries outside the block, which can result in reduced competition and higher prices for consumers. Despite these issues, regional trade blocks are likely to play an important role in the global economy in the years to come.
Threats to free trade due to rising protectionism
Protectionism and regional blocks are threatening the trade regime established under the World Trade Organisation. Some of the other threats to free trade are trade disputes between countries, political instability, rise of economic nationalism, and technological disruptions. WTO is responsible for promoting and regulating global trade. It faces several challenges that threaten its ability to fulfil its mandate. These include deadlocks in negotiations, weak dispute settlement mechanism, and a limited mandate.
The United States and China have been engaged in a trade dispute since 2018. The dispute started when the United States imposed tariffs on imported Chinese goods, citing intellectual property theft and forced technology transfers. China retaliated with tariffs on US goods, and the trade dispute escalated over time. The dispute between the largest economies constitute the biggest threat to global trade today.
The United States has a large trade deficit with China. The US government argues that this huge trade imbalance is harmful to American workers and businesses. It also accuses China of manipulating its currency to gain an unfair advantage in trade. The dispute has had significant implications for the global economy. The dispute has led to the imposition of tariffs on a wide range of goods, causing disruptions in global supply chains and increased costs for businesses and consumers. As both the US and China are members of G20, the grouping can play a role in settling the dispute.
India also is facing a number of problems in its trade engagement with the world. It has been running a large trade deficit, exacerbated by the rising oil prices and high import dependence. India is criticised by its trading partners such as the US for protectionist policies in the areas of agriculture and manufacturing.
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India also has running trade disputes with several countries including the US, China, and several members of the European Union. These disputes are related to tariffs, intellectual property, and market access. India’s effectiveness as a trading nation is affected by structural factors such as poor infrastructure, bureaucratic inefficiencies, and a lack of competitiveness in some critical sectors.
India is in a tight spot as G20 president. It is leading the organisation at a time when the largest economies are showing protectionist tendencies. As an aspiring global power, its leadership credentials are closely linked to its achievements and failures in forging partnerships and resolving disputes. It may also need to resolve its own issues with China with which it is running a huge trade deficit. India and China are locked in a power rivalry that will define the future of international relations in the coming decades.