Rise of protectionism and the free trade conundrum

Despite a large number of eminent trade theorists backing free trade, many people across the globe, especially in developed countries, hold free trade detrimental to their interests, national and personal; they hold free trade beneficial to the extent it provides market access for their goods and services, but it becomes a villain when goods, services or investment enters domestic markets, challenges inefficiencies, infirmities and protected profit-making machineries.

- Rakesh Mohan Joshi

Fundamental trade theories of absolute advantage, comparative advantage or factor endowment, promote free trade to achieve factor efficiencies, economic welfare, and growth. The considerable rise in production costs in high-income countries led to the shifting of their manufacturing to locations with relatively cheaper costs of production, especially labour. The latter could carry out labour-intensive production activities more efficiently, as they possessed an abundance of less-educated workers. In return, these countries would buy more of the high-value goods made by skilled labourers, on which the high-income countries have a comparative advantage. This shift in production led to considerable job cuts in high-income countries. Subsequently, the high-income countries began to feel the heat of imports from countries such as China that flooded their markets with cheap goods.

The economic marvel achieved by China, despite being a non-market and closed economy with significant opacity, compels one to introspect on the efficacy of free-market and free-trade doctrines. Despite volumes of economic research, based on empirical and elaborate data analysis, rising nationalism based on protectionist economic policies seems to be the recipe globally for rising on the power ladder.