Protectionism – Significance & Challenges – Explained Pointwise

The rise of economic nationalism and geopolitical tensions has led to a recent resurgence of protectionist sentiment globally, often referred to as de-globalization or slowbalisation.

Introduction:

Protectionism refers to a set of government policies and measures designed to restrict international trade to help domestic industries and workers against foreign competition. It is the opposite of free trade, where goods and services can flow across borders without artificial barriers.

Key Tools & Methods of Protectionism:

Protectionism in Present Context:

1. US Tariffs and “America First” Policies: Trump administration has increased tariffs to 125% on Chinese goods, 25% on Indian imports (for importing Russian oil), 25% on Canadian imports in 2025, emphasizing economic security, reshoring, and leveraging trade barriers as geopolitical tools.
2. EU Carbon Border Adjustment Mechanism (CBAM):  EU levies carbon-based tariffs on imports of carbon-intensive goods (e.g., steel, aluminum, cement, fertilizers) from countries with weaker climate regulations. This is designed to protect EU industries and incentivize global climate action but effectively acts as a new non-tariff barrier. 
3. In 2024, India raised import duties on edible oils from 5.5% to 27.5% to protect domestic farmers, and has also imposed higher tariffs on electronic goods and select machinery to promote “Aatmanirbhar Bharat”. 

Arguments in favour of Protectionism:

1. Protecting Infant or Emerging industries: New industries may struggle to compete against established foreign producers. Temporary protection (tariffs, quotas or subsidies) gives them time to mature, develop technologies, achieve economies of scale, and become globally competitive.
2. Safeguarding Jobs & Wages: By limiting imports that threaten domestic industries, protectionism can help preserve jobs, reduce unemployment, and stabilize sectors sensitive to foreign competition (e.g., manufacturing, agriculture).
3. Maintaining National Security: Certain industries (e.g., defense, telecom, pharmaceuticals, food) are vital for national security. Protectionist measures ensure reliable domestic supply chains and reduce dependence on potentially hostile nations.
4. Correcting Trade Imbalances: Imposing tariffs or quotas on imports can help reduce persistent trade deficits, bolster the balance of payments, and support currency stability—especially for countries suffering from massive import bills.
5. Preventing Dumping & Unfair Competition: Anti-dumping duties and other protectionist tools are used to stop foreign firms from selling below-cost to gain market share, which damages domestic producers and may create monopolies once local competitors are eliminated.
6. Preserving Cultural & Social Values: Limits on foreign goods and investments can protect traditional industries, cultural heritage, and national identity from being overwhelmed by global brands and standards.

Arguments against Protectionism:

1. Higher Prices for Consumers (Taxes on Consumers): Tariffs, quotas, and other barriers raise the cost of imported goods, leading to higher prices for consumers. This reduces consumer purchasing power and overall welfare.
2. Reduced Consumer Choice: Protectionism limits the range and quality of goods available in the market. Consumers have fewer options, particularly for innovative or specialized products that may only be available from foreign producers.
3. Inefficiency & Lack of Innovation: Protecting industries from competition discourages them from innovating, adopting new technologies, or improving productivity. Inefficient “zombie” companies can survive, consuming resources better used elsewhere.
4. Retaliation & Trade Wars: The most destructive consequence of protectionism is the risk of triggering retaliatory actions, leading to damaging trade wars. This retaliation severely harms the domestic industries that are successful exporters.
5. Global Supply Chain Disruption: Modern economies are highly interdependent through global supply chains. Protectionist policies break these connections, causing delays, shortages, and increased production costs.
6. Erosion of Multilateralism and Rule-Based Order: Protectionism fundamentally challenges the WTO’s core purpose—reducing barriers and ensuring predictable, multilateral rules for trade. 

Major Impacts of Rising Protectionism on India:

1. Reduced Export Competitiveness & Market Access:
   • US and EU Tariffs: Additional tariffs (e.g., US tariffs up to 50% on Indian goods, EU’s Carbon Border Adjustment Mechanism on steel, aluminium) have sharply raised costs for Indian exporters, making products less competitive abroad.
   • Decline in Exports: India’s exports, especially in textiles, steel, chemicals, and engineering, have contracted. Merchandise exports in 2023 dropped by 5% over 2022, with non-gems-and-jewelry exports hit especially hard.
   • MSME Impact: Small businesses, which rely heavily on export markets, have faced order declines, compliance costs, and job losses due to new import restrictions and subsidies favoring local companies in destination markets.
2. Supply Chain Disruptions: Protectionist measures, especially around semiconductors and EVs, have disrupted supply chains. India imports key components from China, and global trade tensions slow or raise the cost of these imports, threatening “Make in India” and the $10 billion semiconductor mission.
3. Impact on IT Sector & Services Exports:
   • Visa and Digital Restrictions: Stricter immigration (H-1B) policies, onshoring requirements, and data localization by developed nations threaten India’s IT and professional services sector, which is a primary foreign exchange earner.​
   • Regulatory Barriers: New rules (data protection, digital sovereignty) in US/Europe increase compliance costs and erode competitiveness for Indian IT firms.
4. Stalled Negotiations: Persistent protectionist disputes have complicated progress in India’s trade talks with the US and EU, slowing down access to new markets and affecting strategic alliances.
5. Strategic Fallout: High-profile trade rows have affected India’s ability to sustain balanced relations with both the US/EU and Russia/China, impacting diplomacy and investor confidence.

Conclusion: Indian policies should focus on strengthening bilateral trade agreements, diversifying export markets, and championing reforms in multilateral institutions. India’s geoeconomic success will depend on its ability to balance collaboration with strategic autonomy in a rapidly changing global landscape.