The New Abnormal: Global institutions, consensus are fraying under pressure from protectionism

Source– The post is based on the article “The New Abnormal: Global institutions, consensus are fraying under pressure from protectionism” published in The Indian Express on 27th February 2023.

Syllabus: GS3- Economy

Relevance: Economic scenario across the world

News- The world economy is undergoing major changes in recent times.

What is happening across the global economy in recent times?

De-globalisation and protectionism has reached new heights in recent times. The environment of growing distrust and reactionary policy actions is worrying.

The supply-side disruptions during the last three years have created problems for the world economy. Countries are adopting policies that build self-reliance and self-sufficiency.

Some policies also aim at exploiting the opportunity and becoming a part of the disrupted global supply chains. Many such policies do not comply with WTO rules.

In the US, “America first” policies are directed at protecting US producers from foreign competition. The Inflation Reduction Act promotes protectionism.

The European Commission has introduced its own Green Deal Industrial Plan. It provides for state aid to help Europe in clean tech products manufacturing.

The EU has also come out with a Carbon Border Adjustment Mechanism to protect its industries from imports from jurisdictions with “less stringent” climate policies.

High global inflation is another unusual phenomenon.

What is the economic scenario in India?

India’s stance on trade policy has been confusing. It has not joined many important free trade agreements in the name of “national interest”. This inward-looking stance contradicts the aspiration to be a part of global value supply chains.

India’s desire to restrict trade with and investments from China hasn’t worked. India’s trade deficit with China has increased to $73 billion in 2021-22 and has reportedly crossed $64 billion during the first nine months of the current financial year.

CPI inflation hasn’t come down to 4%. It has been consistently high in recent months.

Its quest for atmanirbharta has kept import tariffs high. This is leading to a high-cost economy besides bringing in production inefficiencies.

The existing PLI scheme should be critically reviewed and its objectives spelt out.

What are the consequences of economic policies adopted across the world?

The basic structure of the world order is under threat. It was established over decades through trust, multilateral institutions and mutually beneficial and well-intentioned global negotiations.