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.
