The blow to globalization and the impact on India
The enormous impact of globalization is seen from the fact that global merchandise trade as a share of world gross domestic product increased from 27.7% to 50.3% between 1986 and 2011. In India, we saw a similar story—the share of foreign merchandise trade went up from 11.5% of GDP to 44.4% in 2012. Since then, as the chart shows, it has been a downhill ride. And the slide has happened even before the advent of Trump.
Economists say globalization has started to retreat partly as a result of the financial crisis, partly as supply chains have reached their limits and perhaps also because new technologies make onshoring more attractive.
It’s no secret that the boom years from 2003-08 were also the years in which the trade/GDP ratio went up spectacularly. So now that trade growth has been trumped, GDP growth too will be affected.
During the globalization era, developing countries laid out the red carpet for foreign investors and desperately tried to plug themselves into global circuits of accumulation, by cutting costs and corners and by whipping labour into shape.
The Indian economy, on the other hand, has been mainly dependent on domestic consumption. Foreign investment has been lured by the size of the domestic market, not for using the country as a base for global value chains. That should cushion it if the trade wars get nasty.
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