Let’s think of a typical day in our lives in this globalized world. We tune in to a news channel broadcasting from the United States on our television sets manufactured in China. We check our phones, most of which were assembled in China and Taiwan. We wear garments that are sewn in Bangladesh or Thailand. We then move to our workplaces in a car made up of parts that were manufactured in more than a dozen countries. All these exemplify global interconnectedness and our indispensable global economic interdependence. Trade is the major factor propelling the interconnectedness between nations. International trade has transformed the entire global economic landscape. Today approximately, one-fourth of global production is exported. Countries not only trade in finished products but also in intermediate inputs as well. According to a European Commission Report, trade may increase employment and can produce higher income in some sectors, thereby improving people’s standards of living. It provides consumers greater choices and lower prices, thanks to a wider supply of goods and services. Trade has grown in volumes, contributing significantly to the rise in the world’s GDP.
However, in recent times we are witnessing strong anti-globalization, protectionist waves sweeping across continents capturing the imagination of political leaders who have been putting forward the cause of protecting domestic interests. The global trading system is far from being perfect. The calls for increasing protectionism from various quarters have contributed to the current tensions in the international arena particularly the recent tariff war between the US and China. The current uncertainties in the global economy show that protectionism is hitting us hard. It is impossible to ignore the fact that many of WTO’s trade rules are two decades old and they seem to be a misfit in today’s business world. The monitoring and surveillance system of WTO has not been very effective in ensuring that every member nation follows the rule-based trade agreements. Trade rules minimize inefficiencies, the lack of transparency, and fragmentation.
However, we can witness that such trade rules have seen to be futile amidst all these fluctuations. It is not only that international trade is limited to only physical aspects like the movement of goods, containers, ships, cargoes, etc. There is a whole lot of process that goes in sync with the physical aspect: underlying, controlling, and regulating these movements. Information handling is instrumental in trade, any misconstrue in this process will impact the flow of goods and services. Poor communications have been hampering growth in trade. Albeit there seems a lack of international coordination in large infrastructural projects such as in the case of the Belt & Road Initiative where India chose to stay away from joining it or in the case of the International North-South Transport Corridor where the regional aspersions have not allowed to take the project forward in real sense. Informational and procedural obstacles too cause a delay in the free flow of goods and services. Delay in quick custom clearance remains a crucial unresolved issue for manufacturers.
Inefficient shipping procedures and documentation processes act as a major irritant in free trade. Protection of national economies by imposing undue tariffs may seem to be an alluring political temptation but in reality, it does not seem to be impacting the creation of jobs. All the studies show that there is a negative correlation between trade restrictions and trade volumes which ultimately impacts the GDP and employment. Excessive customs and trade formalities further add to the woes of exporters and importers. Empirical evidence tells that long custom processing time results in fewer exports and imports. With United States having already pulled out of Trans-Pacific Partnership and have cast aspersions on NAFTA did not turn out exactly what the American administration would have anticipated. Statistics showed that there has been a dip in American exports in the Pacific region after its’ withdrawal ultimately harming American firms. These overwhelming protectionist tendencies have hit the USA’s global standing as well. The developed-developing divide could not be seen more acutely anywhere than in the case of trade of agricultural productions. Subsidies given by developed countries remain the bone of contention. They spend billions on providing subsidies to farmers which has led to a huge surplus which eventually results in developed countries dumping their produces in developing ones and the domestic agricultural in these developing countries have to bear the brunt. This is a clear violation of global trade policy. It is killing competition in the global market as agricultural commodities from developing countries are not able to compete with their developed counterparts. This trade-distorting practice has been challenged at global trade forums however without resulting in any comprehensive agreement as to the developed bloc still controls the global trade policy-making forums and the developing bloc has failed in countering this narrative.
Many nations have deliberately tampered with their exchange rates by lowering their currency exchange rates and making their exports cheap and competitive. The US administration has been alleging that China of being a currency manipulator. Again countries with weak domestic countries are simply not able to cope up with this. The non-resolution of the high tariff issue still remains the major irritant in trade negotiations. This barrier has prevented the full integration of the world’s economy. They have been disrupting global supply chains. Studies have equivocally said that the imposition of retaliatory tariffs is one of the reasons behind the global economic slowdown. Financial markets have been hit largely by these overtly protectionist measures and investors are losing confidence in the markets characterized by frequent stock market crashes.
We realize that globalization has been a major factor behind unprecedented global economic growth. Globalization has been instrumental in reducing poverty, though the claims of globalization bringing benefits to every section have been strongly contested. Undoubtedly, globalization is the engine behind economic growth. So what extent of integration do we seek in the global economy? It is true that overwhelming protectionist measures will hurt eventually economic growth. There cannot be an optimal degree for the extent of globalization. But as our interconnectedness increases, we must ensure that the free flow of goods, services, capital, and labor is the way forward.
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Belonging to Gurgaon, he is currently a student at Kirori Mal College pursuing Economics Hons. Ishaan is a fun loving person, soft at heart and a confident and dedicated soul. You can typically find him working for his endeavours or attending a Model United Nations conference. He likes to keep himself aware about the happenings around the world!