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Rising protectionist policies, guided by tariffs, trade barriers, and subsidies, are reshaping global trade dynamics. India, as an emerging market, faces both challenges and opportunities in navigating this shifting economic landscape.
Protectionism refers to government policies that restrict international trade (Import) to shield domestic industries from foreign competition.
These policies aim to protect local jobs, industries, and national interests but can disrupt global trade flows.
Key Tools
Example: US 50% tariffs on Indian goods, EU’s Carbon Border Adjustment Mechanism (CBAM), India’s import duties on electronics.
Fragmentation of Global Trade
Increased tariffs and trade barriers disrupt free trade, reducing global trade volumes. World Economic Forum indicates global trade growth to decline by 0.2% in 2025, due to protectionist measures.
Rise of regional trade blocs (e.g., BRICS, Shanghai Cooperation Organisation) as countries prioritize local alliances over multilateral frameworks.
Supply Chain Reconfiguration
Countries are diversifying supply chains to reduce reliance on single nations (e.g., China+1 strategy to counter China’s dominance).
Reshoring (bringing manufacturing to one's home country) and nearshoring (moving it to a nearby country) trends increase costs but boost domestic manufacturing in some economies.
Rising Costs and Inflation
Tariffs increase prices of imported goods, contributing to global inflation (e.g., US consumer price inflation rose to a seven-month high of 2.9% in August 2025, partly linked to trade restrictions).
Supply chain disruptions exacerbate shortages, impacting industries like semiconductors and pharmaceuticals.
Shift in Investment Flows
Protectionist policies redirect Foreign Direct Investment (FDI) toward countries with favorable trade policies or domestic incentives.
Decline in multilateral cooperation, with WTO negotiations delaying on key issues like subsidies.
Trade Restrictions
Reduced access to developed markets due to tariffs and Non-Tariff Barriers (NTBs) limits export growth. For example, developing nations face EU's CBAM compliance costs, hampering exports.
Dependency on raw material exports makes emerging markets vulnerable to global price volatility.
Opportunities for Diversification
Supply chain shifts create opportunities for countries like India, Vietnam and Mexico to attract FDI, under China+1 strategy.
Regional trade agreements (e.g., Regional Comprehensive Economic Partnership) boost intra-regional trade among emerging markets.
Economic Vulnerability
Smaller economies with limited domestic markets struggle to absorb shocks from global trade disruptions.
Currency depreciation and debt burdens worsen as global investment slows.
Technology and Innovation Gaps
Restrictions on technology transfers (e.g., US bans on Chinese tech firms) limit access to advanced technologies for emerging markets.
Economic Strengths
Large domestic market (1.4 billion population) and growing middle class drive consumption-led growth.
Diverse economy with strengths in IT, pharmaceuticals, and manufacturing (e.g., 3rd largest pharmaceutical producer by volume).
Strategic initiatives like Atmanirbhar Bharat and Make in India promote self-reliance and manufacturing.
Global Standing
India’s GDP growth (projected at 6.2% for 2025 by IMF) outpaces many emerging markets.
Active participation in forums like G20, BRICS, and SCO enhances India’s global influence.
Trade Profile
India’s exports (merchandise & services) reached $820 billion in 2024-25, with key sectors like petroleum, gems, and IT services.
Free Trade Agreements (FTAs) with UAE, Australia, UK and ongoing talks with EU strengthen market access.
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Challenges High dependence on imported energy (over 85% of oil) and critical minerals exposes India to global supply shocks. Relatively low share in global trade (2.1% of world exports) compared to China (12.3%). |
Supply Chain Diversification
Global firms seeking alternatives to China view India as a viable hub due to its low labor costs and large market. For example, Apple expanded iPhone manufacturing in India, contributing 14% of global production in 2024.
Production-Linked Incentive (PLI) schemes attract FDI in electronics, textiles, and renewables.
Boost to Domestic Manufacturing
High import tariffs (e.g., electronics) encourage local production, aligning with Atmanirbhar Bharat.
Growth in sectors like solar panels and EVs positions India as a regional manufacturing hub.
Regional Trade Leadership
India can strengthen ties through BRICS, SCO and bilateral FTAs, enhancing trade with ASEAN and Middle East.
Chabahar Port, International North–South Transport Corridor (INSTC) and India-Middle East-Europe Economic Corridor (IMEC) offer strategic trade routes, bypassing USA protectionist barriers.
Digital and Green Economy
India’s IT sector and digital initiatives (e.g., UPI, Digital India) position it as a leader in tech-driven trade.
Green energy push (500 GW renewable capacity target by 2030) aligns with global demand for sustainable solutions.
Export Barriers
Developed nations’ tariffs and NTBs (e.g., EU’s CBAM) increase compliance costs for Indian exporters, especially in steel and textiles.
Limited participation in global value chains restricts India’s export competitiveness.
Dependence on Imports
Reliance on imported critical minerals (e.g., lithium, cobalt) and energy exposes India to supply chain disruptions.
Rising global commodity prices strain India’s trade deficit ($282.83 billion in 2024).
FDI Competition
India competes with Vietnam, Indonesia, and Mexico for FDI, where faster reforms and lower trade barriers give others an edge.
Strengthen Domestic Capabilities
Accelerate PLI schemes and infrastructure development (e.g., Bharatmala, Sagarmala) to boost manufacturing and logistics.
Invest in R&D for critical technologies (e.g., semiconductors, AI) to reduce import dependence.
Diversify Trade Partners
Deepen FTAs with high-potential markets like EU, UK, and African nations to offset protectionist barriers.
Leverage BRICS and SCO to promote South-South cooperation and alternative trade frameworks.
Enhance Export Competitiveness
Simplify export regulations and provide incentives for MSMEs to integrate into global value chains.
Focus on high-value sectors like pharmaceuticals, IT, and green tech to counter trade barriers.
Strategic Multialignment
Balance participation in Western-led (G20, Quad) and China-Russia-led (BRICS, SCO) forums to maximize trade and diplomatic leverage.
Engage in WTO reforms to advocate for fair trade rules protecting emerging markets.
Sustainable and Digital Growth
Scale up renewable energy and digital infrastructure to attract green and tech FDI.
Promote UPI and digital exports (specially in Global South) to lead in services trade.
Conclusion
India can turn protectionism into an opportunity by balancing self-reliance with global integration through Atmanirbhar Bharat, trade diversification, and technology-driven growth.
Source: INDIAN EXPRESS
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PRACTICE QUESTION Q. Protectionism is both a challenge and an opportunity for India. Critically analyze. 250 words |
Protectionism refers to government policies like tariffs, quotas, subsidies, or restrictions that limit imports to protect domestic industries from foreign competition.
It disrupts export-led growth models, reduces access to global markets, raises input costs, and weakens competitiveness. However, it also creates space for domestic industries to grow.
With global supply chains diversifying away from China, India can attract investments, boost local manufacturing under Make in India, and expand digital exports.
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