RAJIV GANDHI NATIONAL UNIVERSITY OF LAW,

PUNJAB

4th Semester - Economics

Topic – A recent rise in protectionism across

the globe and its impact on the Global trade

Submitted to- Dr. Brindpreet Kaur ( Assistant Professor

of Economics)

Submitted by Ayush Tripathi

Roll no- 20173

1
 ACKNOWLEDGEMENT

I appreciate and thank Dr. Brindpreet Kaur for giving me the chance to do the
project work under her supervision and giving us all the assistance and
encouragement that made me complete the project properly. I am very grateful
for her kind assistance and support since she has a packed schedule.

I owe my profound appreciation to her; she took immense interest in our project
work and led us all along until the end of our project work by supplying all the
requisite knowledge for the project work.

I would like to express my deep gratitude to my fellow group mates of economics

for their support and more of their prompt assistance and advice till our project
work is finished.

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Table of Contents

Introduction…………………………………………………….4-5

Globalization……………………………………………………6-7

o What exactly does the term "Globalization" mean?

PROTECTIONISM………………………………………………8-11

o What exactly is protectionism?

o Protectionism in its various forms

Why do governments choose protectionism? .....................12- 13

o Counter-arguments to Protectionism

Protectionist Policies Rising across the World ………….....14-17

o India
o United States
o European Union
o United Kingdom

Despite the world's protectionist posture, India's free trade

agreements in recent times……………………………..….18-20

The way forward for India…………………………………..21- 22

Conclusion……………………………………….…………….23

Bibliography…………………………………………………24-25

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4
 Introduction
The COVID-19 epidemic has generated considerable economic anxiety
throughout the world, and this, along with the US-China trade war, has led to
governments implementing protectionist policies. While the rules enacted by
India, the United States, the United Kingdom, and the European Union have
taken various forms, the fundamental issue is the same: protect domestic
enterprises, particularly in vital areas, from being bought by state backed
investors from other nations.

At the same time, the benefits of free trade are being questioned by the public
and government. The United Kingdom has voted to leave the European Union,
the United States has reverted to protectionism, and trade barriers have risen
significantly in recent years in both developed and developing economies,
contributing to a weakening of global commerce. Prices and economic activity
are affected by rising trade barriers. Higher trade costs can boost consumer
prices to the degree that higher tariff and non-tariff barriers filter through to the
pricing of intermediate and final products. Since the Great Recession, global
commerce has been growing at a slower rate after decades of important moves
toward international commercial integration. At the same time, the benefits of free
trade are being questioned by the public and government. The United Kingdom
has voted to leave the European Union, the United States has reverted to
protectionism, and trade barriers have risen significantly in recent years in both
developed and developing economies, contributing to a weakening of global
commerce. Prices and economic activity are affected by rising trade barriers.
Higher trade costs can boost consumer prices to the degree that higher tariff and
non-tariff barriers filter through to the pricing of intermediate and final products. 1

In this research, we will attempt to comprehend the international trade order in

the context of the Covid-19 pandemic, how it has influenced globalisation, and
1
BURROWS, MAT, and PETER ENGELKE. “What World POST-COVID-19?: Three
Scenarios.” Atlantic Council, 2020. http://www.jstor.org/stable/resrep24634.

5
how the world has reacted to it in the form of protectionism to rescue the
crumbling domestic economy.

6
 Globalization

2.1 What exactly does the term "Globalization" mean?

Globalization refers to the free and frictionless flow of products, services, and
people throughout the world. Globalization may be defined as the effect of the
global economy's opening up and the resulting growth in cross-national
commerce. To put it another way, as nations that were previously restricted to
trade and international investment open up their economies and grow global, the
world's economies become more linked and integrated. 2

Furthermore, globalization might imply that governments liberalize their import

regulations and invite international investment into key economic areas. This
means that by opening their economies to international firms, governments
become magnets for drawing global capital.

Furthermore, as a result of globalization, governments are liberalizing their visa

laws and processes to allow for free movement of individuals from one country to
another. Furthermore, globalization results in the unproductive sectors being
opened up to investment and the productive sectors being opened up to export-
related activities, resulting in a win-win situation for the world's economy.

2
Pettinger T, “The Effects of Protectionism” (Economics HelpJanuary 20, 2020)
<https://www.economicshelp.org/blog/52/trade/effects-protectionism/> accessed
April 28, 2022

7
It refers to the integration of nations' economic, social, and political systems. It
comprises the transfer of goods, technology, information, and jobs across
national and cultural boundaries.

It is the international integration process that results from the exchange of global
views, goods, ideas, and other cultural factors.

In economic terms, it refers to the interconnection of nations throughout the

world, which is facilitated by free trade.

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 PROTECTIONISM

3.1 What exactly is protectionism?

The practice of adhering to protective trade policies is known as protectionism.

By imposing tariffs or otherwise limiting foreign products and services in the
marketplace, a protectionist trade policy helps a country's government to
encourage home manufacturers and therefore stimulate domestic production of
goods and services. Governments can also use protectionist measures to shield
budding home industries from established overseas rivals. 3

3.2 Protectionism in its various forms

3
Drishti IAS, “Dump Protectionism” (Drishti IASOctober 28, 2021)
<https://www.drishtiias.com/daily-updates/daily-news-editorials/dump-
protectionism> accessed April 28, 2022

9
Different types of protectionist policies exist, including:

Tariffs

Tariffs are the taxes or charges placed on imported goods. Tariffs raise the cost
of imported goods on the domestic market, reducing demand for them.

Quotas

Quotas are limits on the amount of a certain commodity or service that can be
imported during a set period of time. A "non-tariff trade barrier" is what quotas
are called. Because of the supply limitation, the price of imported items rises,
lowering demand in the domestic economy. 4

Subsidies

4
@CD Pauthor BS, “[Burning Issue] Protectionism, Globalization and Covid-19
Pandemic” (CivilsdailyNovember 13, 2021) <https://www.civilsdaily.com/burning-
issue-protectionism-globalization-and-covid-19-pandemic/> accessed April 30,
2022

10
Subsidies are government-provided negative taxes or tax credits to domestic
producers. They cause a price difference between the price consumers pay and
the price manufacturers pay.

Standardization

A country's government may compel all imported items to follow particular rules.
The India government, for example, may mandate that all imported shoes have a
particular percentage of leather.

Efforts to standardise products tend to limit the number of foreign items on the
market.

Anti-dumping charges

Dumping is the practise of selling products at a price considerably below their

market worth in order to eliminate competition. India is the leading proponent of
anti-dumping legislation designed to protect domestic industry from foreign
competition.

As per the World Trade Organization, India launched 233 anti-dumping

investigations between 2015 and 2019, up from 82 between 2011 and 2014.

Rules of Origin

The Customs Act in India was revised to include a need for Rules of Origin. To
guarantee compliance with the rules of origin requirement, India has put onerous
constraints on imports. The intention seems to be to discourage importers from
purchasing items from India's FTA partners.5

Requirement for local content

Instead of imposing a restriction on the amount of items that can be imported, the
government might mandate that a specific percentage of those commodities be

5
Id.

11
manufactured in the India. It is used in India for defense contracts and
technological sectors.6

6
Id

12
 Why do governments choose protectionism?

4.1 Reasons for Protectionism

National Security

The argument is about the danger of being economically dependent on other

countries. Economic dependence, it is believed, might limit one's alternatives in
the event of conflict. Furthermore, the other country's economy might have a
detrimental impact on the other country's economy.7

Infant industry

Protectionist measures, it is argued, are essential to protect industries in their

early phases. As long as the market is open, worldwide established firms will
beable to seize it. Domestic participants in the new industry may be forced out as
a result of this.

Dumping

Many nations dump their commodities in other countries (sell them at a lower
price than their cost of production or cost in the local market).

Dumping's goal is to expand market share in a foreign market by pushing away

competitors and thereby creating a monopoly.

Job preservation

It is suggested that purchasing more domestically will improve national output,

which will result in a better domestic employment market.

Outsourcing

It is typical practice for firms to seek nations with lower labour and simpler
governance systems and outsource their job tasks to them. This results in
employment losses in domestic industry.

7
Supra Note-2

13
Protection of Intellectual Property

Patents safeguard inventors in a domestic system. On a global basis, however, it

is extremely usual for underdeveloped countries to reverse engineer innovative
technology.

4.2 Counter-arguments to Protectionism

International Trade Agreements: India has reaped enormous benefits from trade
agreements with other countries. They offer tariff breaks, allowing for the export
of a variety of items, particularly those connected to small and medium-sized
businesses (SMEs).

Regulations of the World Trade Organization (WTO) are being violated.

India has been a member of the World Trade Organization (WTO) since its
foundation. Import restrictions from other nations are prohibited under WTO
rules.

They can only be enforced for certain reasons such as balance of payment
issues, national security, and so forth. Domestic business cannot be protected
from healthy competition by imposing such restrictions.

Inflationary in Nature

Protectionist policies, which limit imports, can lead to price increases in the
domestic market. As a result, consumers' interests are adversely harmed.

Domestic Industries that are Uncompetitive

They have little motivation to innovate or expend resources on new product

research and development (R&D) if local industries are protected

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 Protectionist Policies Rising across the World

5.1 India's protectionist policies

In the aftermath of the Covid-19 epidemic, India has taken protectionist

measures

India has implemented two types of protectionist policies

1) The launch of the "Atmanirbhar Bharat" strategy, which translates to "self-

sufficient India," to stimulate local industry and achieve self-sufficiency in the
near future.

2) The Indian government now demands prior authorization for foreign direct
investments in Indian enterprises from border-sharing nations.

Direct investments, as well as investments beneficially owned by entities or

persons of bordering countries, are covered.

Aims to regulate Chinese investments and may also encompass investments

from Hong Kong and Taiwan firms.8

Tariffs on average are rising

Increase in average rates: The simple average of India's tariffs, which was 8.9%
in 2010-11, has risen to 11.1 percent in 2020-21. These price hikes have thrown

8
Shukla S, “India's Trade Protectionism and Low-Productivity Vicious Cycle”
(Ideas For IndiaJuly 7, 2021) <https://www.ideasforindia.in/topics/trade/india-s-
trade-protectionism-and-low-productivity-vicious-cycle.html#:~:text=One%20of
%20the%20signature%20features,11.1%25%20in%202020%2D21.> accessed
April 29, 2022

15
India's political consensus on tariff liberalisation, which it has pursued since
1991, into disarray.

Anti-dumping Measures Initiator

India is the leading proponent of anti-dumping policies aimed at protecting

indigenous industries from import competition. According to the WTO, India
started 233 anti-dumping investigations between 2015 and 2019, a significant
rise from 82 initiated between 2011 and 2014. (June).

Extending the ambit of Article 11(2) (f)

India has revised Section 11(2)(f) of the Customs Act of 1962, granting the
government the authority to prohibit the import or export of any commodity in
order to protect the economy.

Extending the scope of Article 11(2)(f) to include all goods is contrary to India's
WTO commitments. While the WTO authorises nations to apply import limits in
cases of harm to domestic industry, not the "economy,"

Stringent origin rules

Unjustified claims of FTA advantages endanger domestic industry. Following

that, India changed the Customs Act's rules of origin requirement.

The rules of origin determine a product's national origin

This assists in determining whether a preferential tariff rate (if the product
originates in an FTA partner country of India) or the most favoured nation rate
should be used (if the product originates from a non-FTA country).

The goal appears to be to discourage importers from purchasing goods from

India's FTA partners.

The effect of being vocal on local

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PM Modi's catch phrase to be "vocal for local" is fostering an environment in
which imports are despised, damaging competitive prospects and trading
relations.

5.2 Measures implemented by other nations

5.2.1 Measures in the United States

In the United States, the Foreign Investment Risk Review Modernization Act
went into effect.

It gives the Committee on Foreign Investment in the United States (CFIUS) the
authority to handle national security concerns about foreign exploitation of
specific investment arrangements.

Acquisitions of minority stakes in specific industries, such as

telecommunications, electricity, oil and gas, defence, and finance, must also be
reported to the CFIUS.

5.2.2 In the European Union, there are a variety of policies in place

Likewise, the European Union has pushed member countries to implement

screening processes for foreign investments that are likely to have a negative
impact on security or public order.

Member states must evaluate whether an investment has an influence on key

infrastructure (such as water, energy, transportation, health, and
communications); has an impact on critical technologies (such as artificial
intelligence, cybersecurity, defence, and energy storage); results in access to
sensitive information, including personal data; and so on in order to decide if an
investment is likely to harm security or public order.

Currently, France, Italy, Germany, and Spain, among other European Union
countries, have developed national processes to screen foreign investments.

5.2.3 Measures in the United Kingdom

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The National Security and Investment Bill has been submitted in the UK
Parliament, with the goal of empowering the Secretary of State to investigate
specific purchases that might jeopardise national security.

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 Despite the world's protectionist posture, India's free trade
agreements in recent times

New Delhi has signed three free trade agreements in the last few years: the first
with Mauritius in February 2021, the second with the United Arab Emirates
(UAE), and the third with Australia, with trade negotiations with the EU and the
United Kingdom still underway.

India was on a signing binge at the start of the 2000, inking one contract after
another. The majority were Free Trade Agreements (FTAs), while others were
dubbed Economic Cooperation and Partnership Agreements (CEPAs) or
Comprehensive Economic Cooperation Agreements (CECAs) due to their
broader scope, which included investments and intellectual property rights.

Thailand (2003), Singapore (2005), ASEAN (2009), South Korea (2009), Japan
(2011), and Malaysia all inked agreements with India (2011). Then, for a decade,
from 2011 to 2019, New Delhi refused to sign even one deal, pulling out during
the final round of the Regional Comprehensive Economic Partnership (RCEP)
discussions in 2019, as China refused to bend on India's demand for further
concessions.9

6.1 Why did India refrain from signing FTAs between 2011 and 21?

After the office of the chief economic advisor under the Ministry of Finance
examined the results of existing FTAs in 2015, India opted to take it slow when it
came to negotiating pacts. Despite the fact that many in the administration

9
“What's Driving India's Free Trade Pacts despite the World's Protectionist
Stance? : Daily Current Affairs” (Dhyeya IAS® - Best UPSC IAS CSE Online
Coaching | Best UPSC Coaching | Top IAS Coaching in Delhi | Top CSE
Coaching) <https://www.dhyeyaias.com/current-affairs/daily-current-affairs/what-
driving-india-free-trade-pacts-despite-the-world-protectionist-stance> accessed
May 1, 2022

19
continued to support an FTA-led trade regime, the conclusion was not very
favorable to actively pursuing free trade

The results of the FTA research were mentioned in the 2015-16 Economic
Survey. According to the report, increased commerce has been more on the
import side than on the export side. According to the commerce ministry's export-
import data, India's total exports to FTA/RTA (regional trade agreement) partner
nations increased by only 6.7 percent from $59 billion to $63 billion between
2016-17 and 2020-21, while imports increased by over 13 percent from $65.7
billion to $74.5 billion.

South Korea and Japan, as well as the ASEAN region, reaped disproportionate
benefits from India's free trade agreements. The issue worsened in 2018-19,
when India's overall imports from such trade partners increased by 42 percent in
only two years to $93 billion, requiring the government to strategize on how to
reduce the massive import bill.

In the face of rising protectionism, India is liberalising its economy

A determined move to bring commerce and the economy back into balance:
India's reintroduction of trade liberalisation is not accidental. The country has

20
been stepping cautiously, whether in selecting a partner or in deciding when and
how to engage in difficult discussions.

After all, New Delhi must strike a balance between free commerce and
Aatmanirbharta (self-sufficiency), the latter gaining popularity during the outbreak
of the Covid-19 epidemic, which disrupted global supply lines and other systems.

Focusing on the least sensitive issues: India has selected just those partners with
whom it has the fewest disagreements. Agriculture, for example, which is a
contentious topic in India, is unimportant to the UAE. India is also concerned
about concerns such as patent protection. The UAE, on the other hand, is not
thought to be interested in pursuing this matter aggressively.

According to a statement from the Ministry of Commerce and Industry, the UAE
is India's third largest trading partner behind the United States and China, with
bilateral trade projected to exceed $60 billion in the current fiscal year.

Creating a strong geopolitical alignment through trade: Australia, for example, is

a key actor in India's new geopolitical environment. As a result, New Delhi's
maritime alliance with Australia has lately accelerated, as the two countries face
a common danger from China, which has been flexing its military power from the
Himalayas to the Asia-Pacific.

Focusing on complementary economies: In the industrial sector, Japan and

South Korea, with whom India has signed free trade agreements, are extremely
competitive. India is currently concentrating its efforts on countries with
complementary economies, such as the Maldives and Canada.

Fighting the perception that India is a protectionist country: India has the highest
tariffs "of any major international economy," according to the US commerce
department's newest report on global trade barriers, with an average of 13.8
percent. India is working to alter these perceptions.

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 The way forward

India is not alone in enacting legislation to defend national interests against

opportunistic purchases. However, the repercussions for India, as a developing
country, might be far-reaching in comparison to wealthy countries.

1) It is critical to recognize FDI

As India's economy rebounds from the outbreak, it's crucial to remember that
foreign investment, even that from neighboring nations is critical.

It is an important instrument for bolstering local industry and strengthening India's

economic capability. After all, in 2020, India would receive over INR 6.1 billion in
direct stock inflows from China and Hong Kong.10

2 ) Defending national interests but also inviting international investment

Over the last two decades, India has progressively progressed along the path of
liberalization, opening up more segments of its economy to foreign investment.

As a result, India has received the benefits of globalisation, such as increased

employment and exports, development of infrastructure and technical capacities,
and the availability of higher-quality goods and services.

To remain a member of the global economy, India must find a balance between
defending national interests and inviting international investment.

3) An All-Inclusive Approach

Addressing the requirements of the most vulnerable nations - Measures, such as

export limits and the construction of regional stockpiles, might include particular
exemptions or aid to the poorest countries.

4) Reduced bureaucracy

10
Supra Note-9

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India must implement measures that increase its competitiveness, de-
bureaucratize particular sectors, such as agriculture, and simplify labour rules.

From the procurement of raw materials through the distribution of final products,
a comprehensive and conveniently accessible ecosystem must be made
available.

5) Global alliance alternatives

The surprise call by the Indian Prime Minister for a video conference with SAARC
leaders to design a coordinated response to defeat COVID-19 sets a precedent
for the rest of the world.

India must now look beyond regional alliances and toward a cooperative
economic coalition of like-minded nations such as the United States, the
European Union, and Japan in order to find a way to disrupt China's hegemony in
the global supply chain.

India must turn its collaboration initiatives into a global endeavour by participating
in multilateral formulation of answers to global policy concerns and sharing
learning and experiences in order to build public systems and state institutions
throughout the world.

6) Encourage R&D and capacity building

To become cost-competitive and quality-competitive, it is necessary to

emphasize capacity creation and policy framework development.

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 Conclusion

In the past, India committed a strategic error by indiscriminately opening its

borders to readymade foreign goods. It's pointless to pursue free trade unless
our domestic sectors are competitive enough to compete with global behemoths.
As a result, India must find a balance between free trade and aatmanirbharta.

"Protectionism may only be effective in the short term. In the end, it will result in a
decrease in global GDP (gross domestic product), which would harm all
economies. As a result, rule-based commerce, such as the WTO (World Trade
Organization) framework, is the best path forward."

If we take Global Perspective on protectionism, it may provide temporary relief

but in long run, the chance of it being a fatal mistake is quite high. The developed
countries feel that they are losing jobs and businesses to developing countries
and on the other hand the developing countries feel that they are losing their
market to Giant multinational companies, while both perspectives have an
element of truth in them but I believe the solution is not less trade but more trade
with better negotiations so that it does not become a zero-sum game.

COVID has caused enormous supply chain disruption; countries that are
dependent on other countries for their essential goods are now taking measures
to establish their own "Domestic Industry". COVID outbreak has changed the
nature of the world, countries around the world have become more critical of
"Globalization" and because of a surge in nationalist sentiment across the world
Protectionist policy is gaining traction among politicians.

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BIBLIOGRAPHY

Research Paper

 BURROWS, MAT, and PETER ENGELKE. “What World POST-COVID-19?:

Three Scenarios.” Atlantic Council, 2020.
http://www.jstor.org/stable/resrep24634.

Articles

 Pettinger T, “The Effects of Protectionism” (Economics HelpJanuary 20,

2020) <https://www.economicshelp.org/blog/52/trade/effects-
protectionism/> accessed April 28, 2022

 Drishti IAS, “Dump Protectionism” (Drishti IASOctober 28, 2021)

<https://www.drishtiias.com/daily-updates/daily-news-editorials/dump-
protectionism> accessed April 28, 2022
 @CD Pauthor BS, “[Burning Issue] Protectionism, Globalization and
Covid-19 Pandemic” (CivilsdailyNovember 13, 2021)
<https://www.civilsdaily.com/burning-issue-protectionism-globalization-
and-covid-19-pandemic/> accessed April 30, 2022
 Shukla S, “India's Trade Protectionism and Low-Productivity Vicious
Cycle” (Ideas For IndiaJuly 7, 2021)
<https://www.ideasforindia.in/topics/trade/india-s-trade-protectionism-and-
low-productivity-vicious-cycle.html#:~:text=One%20of%20the
%20signature%20features,11.1%25%20in%202020%2D21.> accessed
April 29, 2022
 “What's Driving India's Free Trade Pacts despite the World's Protectionist
Stance? : Daily Current Affairs” (Dhyeya IAS® - Best UPSC IAS CSE
Online Coaching | Best UPSC Coaching | Top IAS Coaching in Delhi | Top
CSE Coaching) <https://www.dhyeyaias.com/current-affairs/daily-current-

25
affairs/what-driving-india-free-trade-pacts-despite-the-world-protectionist-
stance> accessed May 1, 2022

26