Emerging Markets Amid Rising Protectionism

• 15 Sep 2025

This editorial is based on “Strategies for emerging markets at a time when protectionism is rising” which was published in The Indian Express on 15/09/2025. It explores the multifaceted challenges confronting emerging markets in the context of rising protectionism and underscores the importance of strategic measures to foster sustainable and resilient growth.

For Prelims: India’s Atmanirbhar Bharat,EU Critical Raw Materials Act,EU Carbon Border Adjustment Mechanism (CBAM),RCEP,BRICS,Indo-Pacific Economic Framework (IPEF).

For Mains: Reasons for rising protectionism in a globalized world,Factors Making Emerging economies vulnerable in rising protectionism,India-US Trade Disputes.

Emerging markets today find themselves at a pivotal crossroads, shaped by the global resurgence of protectionism. Having once thrived on the momentum of globalization through expansive trade networks and steady inflows of foreign investment, these economies now confront a delicate interplay of challenges and opportunities as nations increasingly turn toward inward-looking economic strategies.

Why is Protectionism Rising in a Globalized World?

• Economic Nationalism and Deindustrialization: Countries grappling with manufacturing job losses are prioritizing reshoring. 
  • The U.S. Inflation Reduction Act, 2022 incentivizes domestic clean energy manufacturing, while the EU Critical Raw Materials Act seeks to secure supply chains and reduce import dependence.
• Geopolitical Rivalries and Strategic Decoupling: Intensifying U.S.–China tensions have led to restrictions on firms like Huawei and export controls on advanced semiconductor technology. 
  • Similarly, India’s Atmanirbhar Bharat initiative reflects efforts to reduce reliance on critical imports.
• Supply Chain Vulnerabilities Post-COVID-19: The pandemic exposed fragile supply chains for pharmaceuticals, electronics, and medical supplies. 
  • China’s control over production of steel and solar panels has triggered tariffs from the U.S., EU, and India, aimed at protecting domestic industries from subsidized imports.
  • In response, Japan’s supply chain resilience strategy promotes diversification away from China, while the U.S. CHIPS Act boosts domestic semiconductor production.
• Rising Inequality and Populism: Brexit illustrates populist backlash against globalization, driven by economic inequality and demands to protect local industries.
  • In the U.S., tariffs on steel and aluminum were justified as safeguarding domestic jobs, reflecting electoral pressures.
  • Countries like Brazil and Argentina deploy trade barriers to protect agriculture sectors, signaling sovereignty in trade negotiations despite global calls for openness.
• Environmental and Climate Concerns: The EU Carbon Border Adjustment Mechanism (CBAM) places tariffs on high-carbon imports, compelling exporters to adopt stricter environmental standards.

What Makes Emerging Economies Vulnerable Amid Rising Protectionism?

• High Trade Dependence: Growth in EMs like Vietnam, Thailand, and Bangladesh is export-driven, making tariff and non-tariff barriers particularly damaging.
  • The U.S. has imposed steep tariffs on Indian exports, disrupting trade flows and affecting sectors like textiles, pharmaceuticals, and engineering goods.
    • According to a report by Global Trade Research Initiative (GTRI), the duties will affect $60.2 billion worth of Indian exports, encompassing textiles, gems and jewellery, shrimp, carpets, and furniture.
  • Latin American and African EMs suffer when global demand for oil, copper, or agricultural exports falls.
• Trade Diversion and China Shock 2.0: U.S. tariffs on China have prompted China to redirect excess exports to other EMs, such as India, Thailand, and Indonesia, putting pressure on domestic industries to compete with cheap imports.
• Technological Disruption: Automation and AI are changing the labour market. Labour-abundant countries like India face the challenge of increasing capital-labour ratios, risking job displacement in both blue-collar and white-collar sectors.
  • A NASSCOM report (2023) indicates that AI and automation could displace up to 69 million jobs in India by 2030, particularly in sectors with repetitive tasks like manufacturing and customer service.
• Supply Chain Fragility: Covid-19 disruptions exposed dependence on global supply chains. India’s pharmaceutical sector, reliant on Chinese APIs (Active Pharmaceutical Ingredients), was hit hard.
• Weak Domestic Markets: Unlike developed economies, EMs often lack robust internal demand to cushion external shocks.
  • Large young populations in EMs require job creation and skill development; failure to address this can lead to social unrest, as seen in recent youth protests in South Asia.

What is the Impact of India-U.S. Trade Disputes on India’s Emerging Market Growth?

• Imposition of High Tariffs:The U.S. has levied a 25% tariff on Indian exports, with another 25% hike scheduled, raising the overall duty to 50% on several Indian goods.
  • This sharply raises export costs, making Indian products less competitive in the crucial U.S. market, which accounted for about $48.2 billion in exports in 2024.
  • Key Indian export sectors such as seafood (shrimp), organic chemicals, carpets, apparel, jewelry, and industrial goods face tariff rates above 50%, severely impacting revenue and market share. 
• Trade Negotiation Stalemate: Multiple rounds of trade negotiations have stalled, primarily due to disagreements over market access for U.S. agricultural and dairy products and India’s continued crude oil imports from Russia. 
  • This prolongs uncertainty and disrupts export growth plans.
• Economic Growth Pressure: The tariffs and ongoing trade tensions increase uncertainty for Indian exporters, potentially slowing growth in export-oriented industries, impacting employment, MSMEs, and farmer livelihoods tied to export supply chains.
• Strategic and Political Fallout: The trade dispute has strained bilateral relations, raising concerns in the U.S. over future strategic cooperation and affecting investor confidence and trading partners. 
  • The tensions complicate India's balancing act between its ties with Russia and the West.

What Measures has India Taken in Response to the Rising U.S. Tariffs and Trade Tensions in 2025?

• Measured Non-Retaliatory Approach: India chose not to retaliate with tariffs but adopted a strategic and calm stance to maintain long-term economic relations while protecting immediate interests.
• Boosting Domestic Manufacturing: Through Aatmanirbhar Bharat, the government accelerated its self-reliance initiative, focusing on domestic manufacturing to reduce dependence on volatile external markets.
• Structural Reforms and GST Simplification: Tax reforms, including GST reductions on numerous goods, were implemented to boost domestic consumption and help exporters sustain competitiveness amid rising tariffs.
• Launching Export Promotion Missions: A ₹25,000 crore Export Promotion Mission was launched to provide targeted credit and financial support to labor-intensive sectors like shrimp, apparel, jewelry, handicrafts, and carpets, mitigating tariff impacts.
• Support for MSMEs and Key Sectors: Special financial measures such as collateral-free loans, subsidized interest rates, and export insurance were introduced to assist MSMEs affected by higher tariffs.
• Diversification of Trade Partnerships: India intensified efforts to strengthen ties with global markets and regional blocs such as BRICS, reducing reliance on the U.S. market.
• Financial Assistance and Credit Support: The government facilitated working capital access and export credit to strengthen export-oriented sectors against tariff-related uncertainties.
• Product-Specific Exemptions and Trade Negotiations: Ongoing negotiations sought exemptions or tariff reductions on sensitive products to cushion industries from disproportionate tariff burdens.

What Strategic Steps Should Emerging Markets like India Adopt Moving Forward?

• Diversification of Trade Partners: Reduce reliance on single markets by exploring regional trade agreements like RCEP and the Indo-Pacific Economic Framework (IPEF).
• Strengthening Domestic Industries: Focus on Make in India-style initiatives, infrastructure development, and policies supporting SMEs to enhance resilience.
• Investing in Technology and Innovation: Promote R&D, digital literacy, and AI adoption to increase productivity without displacing labour disproportionately.
• Social Safety Nets: Implement unemployment benefits, welfare programs, and reskilling initiatives to protect vulnerable populations.
• Active Multilateral Engagement: Strengthen institutions like the WTO to ensure a rules-based trading system, safeguard EM interests, and resolve disputes effectively.

Conclusion:

Emerging markets like India are at a crossroads, facing the twin challenges of rising protectionism and rapid technological change. As economist Dani Rodrik insightfully notes, “The impact of globalization and trade policies is fundamentally uncertain, and rising protectionism reflects the complexity of balancing national priorities with global economic integration.” This underscores the need for adaptable, pragmatic strategies to advance emerging economies in a fragmented world.

Drishti Mains Question:

“Rising protectionism poses significant challenges for emerging economies like India.” Discuss the vulnerabilities of India’s export sector in this context and evaluate the effectiveness of recent policy responses.

UPSC Civil Services Examination, Previous Year Questions (PYQs) 

Prelims 

Q.Which of the following has/have occurred in India after its liberalization of economic policies in 1991? (2017)

1. Share of agriculture in GDP increased enormously. 
2. Share of India’s exports in world trade increased. 
3. FDI inflows increased. 
4. India’s foreign exchange reserves increased enormously. 

Select the correct answer using the codes given below: 

(a) 1 and 4 only 

(b) 2, 3 and 4 only 

(c) 2 and 3 only 

(d) 1, 2, 3 and 4

Ans: (b)

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Mains

Q.Do you think that globalization results in only an aggressive consumer culture? Justify your answer.(2025)