In 2018, huge changes in the global economic order created an upheaval among both developed and emerging economies. Business fundamentals were challenged, resulting in an imminent global economic slowdown. Global trade as a percentage of GDP has now fallen to around 56 per cent as against its peak of 61 per cent, achieved in 2008 and 2011.

The year 2018 altered relationships between global economies as well as notions of trade and investment.

Structure of world economy

It all started with the “America First” orientation under which US withdrew from TPP (Trans-Pacific Partnership), imposed huge tariffs on imports from China, framed the mutually beneficial USMCA (United States-Mexico-Canada Agreement) in lieu of NAFTA, and blocked appointment of judges in WTO’s Appellate Body, leading to a crisis in the dispute-settlement process. All these do not seem to bode well for the global economy. TPP not coming through will also mean that American exporters will not have enhanced access to foreign markets in the wake of new trade agreements. In addition, it will also pave the way for China to exert its long lasting influence on Asian economies.

Imposition of trade penalties by any nation may not only damage its downstream industries but will also encourage foreign counterparts to retaliate, adversely impacting global growth, disrupting supply chains and denting consumer and business sentiment.

Global economies are far more inter-dependent right now than they were during the Great Depression.

Hence, such “my country first” trade policy could have disastrous consequences on the liberal international trade order. The structure of the world economy, which the US had only helped to create in the past, seems to be under threat as never before.

Relationship among economies

A chain of executive orders, policy adjustments seem to have created an invisible wall around America, which has made the US immigration policy look more like the xenophobic 1920s.

While the US imposes harsh measures on new immigrants wishing to enter the country for work, latest news from Japan shows the opposite.

The contribution of immigrants to start new businesses in the US, generating more than expected percentage of US patents, leading to global growth amid intense global competition in previous decades is probably being overlooked.

Against this backdrop of growing protectionist measures in many developed economies, emerging economies are, by contrast, actively cultivating their trade partnerships and are transforming global trade patterns through intra-regional trade tie-ups.

China, for example, is the top export destination for Brazilian products. Similarly South Africa, India and Russia are top export destinations for China.

Further, trade blocs such as the RCEP, ASEAN, USAN, EFTA, AU, CARICOM, etc., are likely to generate considerable internal trade momentum and outside trading links with developed markets.

Trade and investment

In globally connected economies, with isolated supply chains and blurred boundaries, there is always a possibility that different policies can trigger battles within. The spat between Harley Davidson and US administration, triggered due to policy difference between US and EU is an example.

Brexit negotiations is another such example. The contours of the exit are not yet clear as both the ‘hard’ and ‘soft’ exits shall have implications for the EU and Britain. All these developments are, and will be, impacting trade and investment across the global space.

India’s total merchandise trade with EU28 is around 14 per cent of the total merchandise exports, with UK alone it is around 2 per cent and with EU27 it is 12 per cent.

These figures clearly amplify one thing; that EU27 would still be a major trading partner of India, post Brexit. However, unless the terms and conditions of Brexit are clear, India can only wait and watch.

Undoubtedly, 2018 was a year of uncertainty, challenges and opportunities on matters relating to international cooperation and global development.

Though it is not feasible to know the expected outcomes from these developments, the recent popularity of protectionism is indeed worrisome.

It is only by transforming challenges into opportunities that emerging economies will probably stand to gain.

The writer assists Secretary (Steel), as OSD. The views are personal.