The Hindu: Published on 5th Feb 2025:
Why in News?
The resurgence of protectionist policies in global trade, especially trade wars between major economies like the U.S. and China.
Increasing instances of currency manipulation by countries to gain a competitive edge in international trade.
Concerns about global economic slowdown due to retaliatory tariffs and trade restrictions, similar to those seen before the Great Depression.
The rise of populist economic policies, particularly under leaders like Donald Trump, who pushed for tariffs on Chinese imports.
Economic Implications
Positive Impact (Supporters' View)
Protects domestic industries and jobs.
Enhances national security by safeguarding key sectors.
Boosts exports by making domestic goods cheaper through currency devaluation.
Reduces import dependence, thus promoting self-sufficiency.
Negative Impact (Critics' View)
Leads to retaliatory measures, reducing global trade.
Increases prices for domestic consumers due to restricted imports.
Causes economic instability, as seen during the Great Depression.
Can weaken consumer purchasing power due to currency devaluation.
Historical Context
Origin in 1776: Concept criticized by Adam Smith in The Wealth of Nations.
Interwar Period (1918-1939): Retaliatory tariffs worsened the Great Depression.
Recent Examples:
- U.S.-China Trade War (2018-2020): Tariffs imposed under Trump administration.
- Currency Wars: Accusations against China and Japan for devaluing their currencies.
Political and Geopolitical Angle
Protectionist policies often arise from political motives, including nationalism and job protection.
Trade policies are weaponized in global politics (e.g., U.S. tariffs on China).
Populist leaders use such policies to gain voter support by promising economic protectionism.
Alternative Solutions
- Unilateral Free Trade: Some argue that instead of retaliation, countries should focus on long-term economic openness.
- Global Trade Agreements: Strengthening WTO rules to prevent unfair trade practices.
- Balanced Policy Approach: Combining targeted protectionism with free trade principles to safeguard key industries without harming global trade.
Future Outlook
- Potential for more trade disputes if protectionism continues.
- Rising risk of global economic fragmentation, with countries forming exclusive trade blocs.
- Need for international cooperation to avoid economic crises similar to past trade wars.
