If protectionism is self defeating why is it on the increase

The government wants India to be a major export hub. To this end, it has re-introduced Licence Raj-era rules to protect domestic manufacturers. In February, the government gave itself the authority to ban the import of any commodity. Additionally, importing TV sets, tyres, air-conditioners, toys and leather footwear, among other things, now requires a licence from the government. This may be extended to cover at least more products. Far from helping exports, such rules are likely to render Indian firms uncompetitive in the international market.

Why would they bother improving manufacturing processes and investing in better technology if they are shielded from foreign competition? This has been observed in the past. Before , the Indian economy was virtually closed off from the rest of the world. Importing goods was an arduous task, requiring licences and steep tariff payments. Consider the case of Tata Steel. Former group chairman Ratan Tata himself admitted that this company was inefficient during the Licence Raj. It did not invest in new technology or try to reduce production costs.

That changed once India opened up and it was forced to compete. A similar transformation was observed across various Indian firms and industries. Today, India seems to be repeating its past mistakes. For instance, the new iPhone 12 Pro is so expensive in India that it would be cheaper to fly to Dubai, buy it there, and return. This is an extreme example, but it illustrates how much more Indians must pay for the same products than people living elsewhere. Adding insult to injury, the government provides subsidies to export many of those products.

For example, imported cars are taxed heavily in India. Yet, until recently, huge subsidies were doled out for cars exports. Export subsidies have been reduced only because the World Trade Organization ruled against them, but the government has ways to exploit loopholes for their reintroduction.

One alternative method employed frequently is to devalue the rupee against other currencies. This makes imports more expensive for Indians, while making Indian products cheaper for foreigners.

Germany, the U. Exports of personal protective equipment are even more concentrated: China, Germany and the U. In other words, competitive market forces are already structurally restrictive.

Guess who has been leading the pack in perverse trade policy at this critical juncture? The U. In recent days, the scuttlebutt in Washington is the White House is keen on placing bans of U. This pertains to cross-border merchandise trade. As a case in point, Washington has restricted the amount of visas permitted for the immigration of foreign nurses to the U. In the case of nurses from the Philippines wishing to emigrate to the U.

Self-inflicted wounds, however, almost always induce a change of heart. In fact, Trump now finds himself in a position of having to procure for U. Thus it was that on March 29, the first of 20 U. The supplies were purchased by several U. In mid-March, Brussels issued a wide-ranging directive that implements a regime requiring member states to seek authorization for the export of masks, protective spectacles and visors, face shields, mouth-nose protection and protective garments.

If that were so, he could have simply put in place an automated mechanism that collects the data he asserts are of such interest to him. And beyond the EU-wide actions, France and Germany have instituted their own country-level measures that act as restraints on cross-border transactions of medical supplies and equipment. For emerging markets, the initial conditions of the overall policy regimes governing international trade in medical supplies are not as favorable as they are in advanced countries.

This is particularly pernicious as emerging markets could well turn out to be the countries hit hardest by COVID in terms of the direct impacts on the well-being of their populations due to nascent health infrastructures and more indirectly as deeply constrained disposable incomes can be stretched only so far to purchase available medical supplies. Paradoxically—perhaps—these are the countries where the incidence of restrictions on trade, whether on the import or export side, are the most pronounced.

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