China Protectionist Barriers and impact on global trade

The decade beginning 1990s to early 2000’s, is generally identified in global economic history as one during which global trade was at its zenith, led by China opening up its borders to import-export business opportunities and cross-border trade deals; fueling global growth like none other. Global supply chains, since then, have transformed themselves into centers of added value rather than mere functional export import trade sites.

Today, however, global economic growth has witnessed unprecedented slow down, with most countries, including US, Europe, China and others calling for increased protectionist policies to safeguard their domestic businesses as they fear themselves at a disadvantage against low-cost foreign products and items. As such, protectionism has become a key watchword for executives the world over, with an estimated three in every five businesses believing it is on the rise on the world stage. The situation seems to become further aggravated with increased rhetoric from US President Donald Trump against major world economies, especially China, intent on imposing more tariffs and cutting down US aidand foreign assistanceto nations.

In fact, many experts even fear retaliation which could spark a global tradewar. So far, though, the impact of measures taken by the U.S. have been small, but a wider lurch towards protectionism through imposition of stricter tariffs and reduced foreign aidand assistance and consequent reprisal by China could also have knock-on effects on emerging market economies by affecting their supply chains and export trade. According to the OECD, while nearly 68% of value added in China’s exports to the world is generated domestically, 15% originates in developed markets and another 17% or so generates in emerging markets.

Businesses, conscious of these developments and keeping a close eye on global trade, are looking to strengthen their regional trade sitesfor new business opportunity, straddling a tough global environment. Supply chains are now becoming electronic and emergence of e-commerce and e-marketing is proving more efficient in generating cross-border import export trade leads. Many are even relocating or forming joint ventures and subsidiaries to operate within these markets and lower costs further.

Even as more global economies turn inwards, hoisting trade barriers and announcing protectionist measures, the sentiment among businesses remains that of optimism in light of the gradually visible economic recovery. Albeit, it remains to be seen whether such green shoots of growth have a chance to deepen their roots or such protectionism jeopardizes cross border trade and commerce for good. Perhaps, increasing voices of global leaders at international fora like G20 Summit exhorting nations to re-evaluate protectionism may have merit. For, if the fear of losing competitiveness is the cause, cossetting local manufacturers will anyway give them little ability to explore growth and compete on a larger scale.

As the world increasingly moves towards a “social market economy” characterized by pursuit of growth through service-oriented participants, technology-led cross-border e-commerceand similar trade sitesare likely to flourish, further slowing down import export trade leads. Bi-lateral free trade agreements are an opportunity to reduce such barriers to trade and boost growth.

While the policy of “standstill and roll-back”; which foreswore protectionism and has been key to the G20 since decades seems merely rhetorical; economic, political and policy challenges to global tradeneed consistent evaluation and attention from top global leaders to douse potential risk of damaging an already flailing global economic recovery.

 

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