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The world needs evolutionary transformation, not economic nationalism (Column: Active Voice)


The developing wave of across the world has reached disconcerting levels. Donald Trump's recent move to raise tariffs on import of and aluminium into the US signalled the pinnacle of the global shift towards

To be fair, the US is the least protectionist large in the world and singling it out might seem hypocritical, especially by more protectionist nations. However, the point remains that there simply exists no economic logic behind the move. There are no economic gains to be made, even by the US, through higher tariffs. Moreover, the costs for the US and the world far outweigh the benefits that can be had from them.

Take the US The tariffs have been imposed to pander to the sentiments of Americans who have been led to believe that their jobs are being taken away by cheap labour in emerging economies. However, the immediate impact of raised tariffs would be a rise in and aluminium prices in the US as firms cannot expand capacity overnight. So, the cost of goods that use these products as inputs will rise and be passed on to the consumers. In turn, if they decide to reduce their consumption due to rising prices, jobs will be lost in the process.

Moreover, according to the US Bureau of Labour Statistics, the number of Americans employed in sectors that consume and aluminium far outnumber those that are directly employed in those sectors. The costs borne by Americans due to a rise in inflation would, therefore, far outweigh any gains that the people employed in the industries concerned would make. So, raising tariffs of these sectors is either ill-thought-out or no more than a political gimmick to appease the voter base.

Now, consider the world was the obvious target of the move, considering the fact that it is the world's largest and has been widely accused of dumping cheap steel in global markets. However, has been reducing its overcapacity in the due to ecological and economic reasons -- shutting down about 50 million tonnes of its production in 2017. To put things in perspective, the US imported less than a million tonnes of Therefore, US tariffs would hardly affect the US economy.

Instead, Trump will end up hurting his closest global allies in Canada, South Korea, and the EU. The three countries will be affected on account of being the largest suppliers of steel to the US, while the EU fears that exports meant for the US would now be diverted to and affect local producers. This might force retaliatory tariffs from countries around the world and, in an unlikely eventuality, could also result in a full-blown trade war.

Even if no trade wars ensue, the economics of does not hold water in an already globalised world. First, international commerce is now driven by knowledge flows that are not affected by tariffs. Second, manufacturing is dependent on global supply chains, which Trump means to attack. However, in Richard Baldwin's words, imposing tariffs is like building a wall in the middle of the factory floor that only decreases efficiency of production and benefits no market.

Finally, the era when countries were building on the foundation of manufacturing jobs is nearing its end. As automation and robotics make rapid advancements, the nature of work is fast changing and the protectionists that promise the return to past glory of the 20th-century factory floors are selling nothing but

has also shown a growing proclivity towards protectionism, most recently in the Union Budget that increased customs duty in more than 10 sectors. However, the same arguments hold true for as well. In fact, in 2016 raised tariffs on to protect domestic producers against cheap Chinese imports. However, manufacturing lost their export markets and had to lay off workers.

More importantly, India cannot hope for a that defined the economic success stories of and even Quite a significant proportion of blue-collar jobs will be lost to automation and modern emerging economies have to adapt to these conditions. Countries that choose to close themselves off to foreign competition are bound to lose their innovative edge. Such inward-looking policies have not helped in the past and they are not expected to do so now.

The perception that globalisation is a zero-sum game needs to be dropped as it has repeatedly been seen that open borders have been beneficial for most stakeholders. A better strategy would be to improve social security of workers exposed to risk in open markets, as the have successfully done. The political mood of restoration of past glory needs to be dropped. call for evolutionary transformation.

(is Chair, Institute for Competitiveness, India. He can be contacted at and tweets @kautiliya. Chirag Yadav, at the Institute has contributed to the article)



(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, March 06 2018. 11:18 IST