The Financial Express

Globalisation, protectionism and trends of world economy

| Updated: April 19, 2018 20:46:48

Evaly and Fianancial Express Evaly and Fianancial Express
Globalisation, protectionism and trends of world economy

Protectionism was once a dominant phenomenon in world economy. In the era of cold war, countries were more concerned to protect their economy than expanding their economic prospects. The socialist countries like Russia and China restricted trade and economic relations with the Western world. Even tourists of other countries were not allowed to visit their countries. People of these countries were also restricted to visit the Western world unless and until those visits promised to be essential and beneficial to them. 

The polarisation process divided the world into two blocs. The eastern and the western blocs designed their economies dependent on their respective blocs. The Eastern bloc countries utilised barter trade system among them in order to ease exchange and availability of essential commodities. Some countries, however, followed neutral policy, maintaining relationship with both the blocs, such as India. Though India initially followed socialist policy and maintained close relationship with Soviet Russia, it still maintained trade relationship with Western Europe and USA. India was very much careful and conscious about protecting its local Industry.

At one stage, both the camps began to realise that protectionist policy is restricting their economic growth prospect. Another development that further prompted the realisation was the fall of Soviet Union. The propaganda of perestroika of Michael Gorbachev hammered the last nail on the coffin of Soviet socialist system. With the fall of Soviet Union, the world started moving towards a new economic order. The process of globalisation began from there. China's emergence as an economic power and its open door policy added fuel to the new economic order. Gradually, other countries followed suit.

Another development which influenced the globalisation process is economic development of the least developed countries (LDCs). Economic development of these countries created new markets for the Western world. On the other hand, some developing countries achieved higher economic growth allowing them to become competitors in world market. All these brought about a tremendous growth in trade world wide. Some of the countries experienced unexpected export-led economic growth. But the main beneficiary of this development was the developed world. Due to expansion of global demand for goods and services they availed the opportunity successfully. The multinational companies of these countries aggressively explored the markets of developing economies as their markets became saturated. At the same time, countries like China, India, Brazil Mexico etc started entering the markets of the developed Western world. Their entry enabled them to achieve tremendous economic growth within a short time, eventually helping them to emerge as new economic power house of the world.

But further growth was greatly retarded due to protectionist policies of developed countries to secure their domestic markets. At one stage, both camps realised that protectionism is obstructing their growth prospect.

The WTO (World Trade Organisation) greatly contributed towards liberalising international trade. The organisation succeeded in building a common platform for rule-based trade negotiations. Countries, through negotiations, gradually reduced the tariff barriers that allowed growth of international trade considerably.

The globalisation process and the role of the WTO enabled the developing countries to enter the developed markets easily. Though there is the allegation that WTO initiatives are more focused to benefit the developed world, the process has certainly facilitated developing economies to get more market access.

On the other hand, developing countries also faced pressure from the developed world to open their markets. Certain sectors of the developing world are not capable of facing competition from those of the developed countries. Opening up their markets and service sector means job loss and lower economic growth and negative balance of trade. So, in a way, both developing and developed countries are on a similar plane in protecting their economic interests.

The result is: countries are moving towards protectionism. USA has declared a 25 per cent tariff on steel imports and 10 per cent on aluminum imports. Similar protectionist stance is likely to come from the Uk following its exit from the EU. The trend suggests that in future, countries will experience a more restricted world trade scenario. The developing countries will face trouble because they have designed and developed export oriented economy targeting their exports for the developed markets.

It is not likely that countries will open their doors to foreign countries unconditionally. At one stage, they will restrict or try to resist foreign economic invasion. But on the other hand, it is not possible for any country to reach maximum efficiency level. The theory of comparative advantage suggests that countries need to focus on producing goods in which they have comparative advantage.

In this context, let us check our economic status. Bangladesh is experiencing a tremendous export-led economic growth. In near future, export volume is expected to reach 50 billion. Most of this achievement is because of the success of the garment sector. Another important source of earning is remittance from overseas migrant labour force. In both cases, expected growth could be retarded due to oil price slump in the world market that may affect the economy of Middle Eastern countries. Coupled with this is the erosion of preferential duty benefits offered by the developed world, particularly the EU. This is going to happen once the country graduates from the current LDC status, which is imminent.

So, moving forward with a narrow range of export products, that too without preferential duty treatment, may be difficult. Precautionary measures are critically needed to secure our economic sustainability and growth. We need to explore new opportunities, increase domestic demand, and diversify our products and markets focusing on global economic trend

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