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De-globalisation and Implications

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April 10, 2018

What is the issue?

  • The US-China trade tussle is perceived to be potential of becoming a trade war. Click here to know more.
  • This is raising global fears of a possible slowing down of the global economic recovery, due to de-globalisation.

What is de-globalisation?

  • "De-globalisation" refers to the trend of countries going back to "national interests first" attitude in trade and economic policies.
  • This often takes the form of tariffs or quantitative barriers.
  • They in turn impede free movement of people, products and services among countries.  
  • The idea behind all this protectionism is to shield local manufacturing by making imports costlier.
  • The recent tariff decisions by US, China and later the European Union's 25% duty on certain US products reflect the trend.

What are the implications?

  • Cost - Tariff wars are just one aspect of de-globalisation policies.
  • There are other implications that can cost countries.
  • E.g. Britain’s divorce with the EU is estimated to cost companies on both sides $80 billion a year without a trade deal.
  • Trade network - The world continues to remain highly globalised.
  • Given this, protectionist moves may overturn the fundamental premise on the basis of which global growth is estimated and organisations such as the WTO regulate global trade.
  • Large, industrialised and prosperous nations are breaking ranks to erect new entry barriers for goods and services.
  • This can drastically impact the fortunes of their many trade partners.
  • Economy - All calculations of global economic growth, inflation and interest rates may get collapsed.
  • E.g. the US economy imports a lot of inexpensive manufactured goods from China.
  • If a tariff war increases costs of imports into the US, its domestic inflation may rocket and US interest rates may increase faster.
  • The recent global bull market is grounded on a global recovery.
  • De-globalisation can significantly impact this optimism.
  • People - The US and the UK have already made immigration norms very stringent for outsiders.
  • So the wave of de-globalisation now evident in trade can potentially move to the people as well.

Will it affect India?

  • India may not be much affected by the recent tussle over tariffs.
  • As US derives only a little over 1% of its steel and aluminium imports from India.
  • However, de-globalisation with respect to the mobility of services and people is certainly a cause of concern for India.
  • It can impact both the export of services, and the trend of Indians migrating abroad for higher education and jobs.

 

Source: BusinessLine

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