10 Apr 2018 17:29 IST

Putting yourself first

De-globalisation is when countries want to go back to economic and trade policies that put their interests first

“Be Indian, buy Indian.” That was the clarion call given to fellow Indians against the British, by freedom fighters led by Mahatma Gandhi, to rescue domestic industry (and induce a bit of patriotism among the masses).

A century later, the political leadership of the US seems to be fighting a pitched battle with China based on a very similar credo. This is fanning global fears about a possible slowing down, if not derailment, of the global economic recovery, due to de-globalisation.

What is it?

The term de-globalisation is used by economic and market commentators to highlight the trend of several countries wanting to go back to economic and trade policies that put their national interests first. These policies often take the form of tariffs or quantitative barriers that 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 present talk around ‘trade war’ and ‘de-globalisation’ cropped up after the US, in March, imposed 25 per cent and 10 per cent duty on steel and aluminium imports, respectively, from certain countries, citing national security and job creation as the triggering factors.

A 25 per cent tariff was then imposed on over 1,300 other Chinese products. China hit back by imposing additional levies on a range of American imports, including walnuts, raisins and almonds. The value at stake in the US-China trade wars range from $100-150 billion. The European Union too has jumped into the fray, with a 25 per cent duty on certain US products.

But if tariff wars are one aspect of de-globalisation policies, some facets can cost countries dear too. Britain’s divorce with the EU is estimated to cost companies on both sides $80 billion a year without a trade deal.

Why is it important?

We still live in a highly globalised world, and these protectionist moves upend the fundamental premise on the basis of which global growth is estimated and organisations such as the WTO regulate global trade. When large, industrialised and prosperous nations break ranks to erect new entry barriers for goods and services, this can drastically impact the fortunes of their many trade partners.

All calculations of global economic growth, inflation and interest rates then go haywire. The US economy, for instance, 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.

India may not be much affected by the recent rash of tariffs, given that the US derives only a little over one per cent of its steel and aluminium imports from India. But de-globalisation with respect to the mobility of services and people can impact both the export of services, and the trend of Indians migrating abroad for higher education and jobs.

Why should I care?

If you are an investor in the markets, you have every reason to worry. The BSE Metals Index fell over 13 per cent from March after the news of trade wars came in. The recent global bull market is predicated on a global recovery and de-globalisation can puncture the optimism very quickly.

What starts with goods can also move to the people. The US and the UK have already made immigration norms very stringent for outsiders.

The bottomline

If you thought globalisation was evil, de-globalisation may well make you change your mind.

(The article first appeared in The Hindu BusinessLine.)

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