The world is shifting from traditional globalization to neo-globalization as nations and businesses adapt to new economic, political, and technological realities. While the earlier phase of globalization emphasized free trade, open markets, and extensive supply chains, recent disruptions—such as the COVID-19 pandemic, geopolitical conflicts, and economic nationalism—have exposed vulnerabilities in this system. As a result, countries are prioritizing regional trade agreements, reshoring industries, and securing supply chains through “friendshoring” with allied nations. Technological advancements, particularly in artificial intelligence and automation, are also redefining production and trade, reducing reliance on low-cost labor in distant countries. Additionally, sustainability concerns and regulatory pressures are shifting investment strategies toward environmentally and socially responsible models. This transition marks a move from an interconnected but fragile global economy to a more strategic, resilient, and regionally balanced neo-globalized world.
Neo-globalization represents a shift from the traditional model of open markets and free trade to a more fragmented, technology-driven, and geopolitically influenced global economy. Unlike the previous era of globalization, which prioritized efficiency and cost reduction through international trade and outsourcing, neo-globalization is characterized by regional trade blocs, supply chain diversification, and economic nationalism. Countries and corporations are increasingly focusing on “friendshoring” and “reshoring” to reduce dependence on single markets, particularly in response to geopolitical tensions like the U.S.-China rivalry and the Russia-Ukraine war. Additionally, digitalization and artificial intelligence are redefining global interactions, with data and digital services playing a greater role in cross-border exchanges. Sustainability concerns, regulatory shifts, and the rise of alternative financial systems are also shaping this new phase of globalization. While global connectivity remains essential, neo-globalization reflects a more strategic, resilient, and multipolar approach to economic integration.
Despite strong academic backing for free trade, protectionist economic policies are gaining momentum worldwide, especially in developed countries like the U.S. The recent election has revived the “America First” agenda, emphasizing mercantilist principles, higher tariffs, and bilateral agreements over established multilateral frameworks such as the WTO. In this evolving global trade environment, India must carefully navigate its partnerships and adopt strategic negotiation tactics to safeguard its interests in bilateral and multilateral trade relations, as well as its broader geo-economic position.
What key challenges does protectionism pose to India’s geo-economic strategy?
1. Declining Export Opportunities and Trade Barriers
With major economies imposing higher tariffs and non-tariff barriers to shield their domestic industries, India’s export competitiveness is taking a hit. Labor-intensive sectors like textiles, gems & jewelry, and agriculture are particularly affected, limiting the country’s ability to expand its global trade footprint. Protectionist measures, such as localization rules and increased tariffs in the U.S. and EU, are slowing India’s export growth. For example, India has opposed the EU’s plan to introduce high tariffs (20%-35%) on high-carbon goods like steel, aluminum, and cement starting in 2026. However, the EU has maintained that these tariffs align with its clean energy goals, offering no relief to exporters.
2. Trade Wars and Retaliatory Tariffs
The ongoing trade conflicts between major economies, such as the U.S.-China trade war, are disrupting global trade flows, indirectly impacting India’s exports and investments. As countries resort to retaliatory tariffs, Indian goods become more expensive, reducing their demand in key markets like the U.S. and EU. Additionally, protectionist measures are widening India’s trade deficit with key partners. For instance, India’s exports to China contracted by 14.85%, dropping from $13.48 billion (April 2023 – January 2024) to $11.48 billion (April 2024 – January 2025), due to extended protectionist policies.
3. Reduced Foreign Direct Investment (FDI) and Capital Inflows
Stricter investment regulations in developed economies are making it harder for Indian companies to expand globally and attract capital. The U.S. and EU have tightened foreign investment screening processes, restricting Indian firms from acquiring technology and businesses abroad. Global FDI fell by 2% to $1.3 trillion in 2023 due to economic slowdowns and geopolitical tensions, according to the World Investment Report 2024. India has also felt the impact, with total FDI inflows declining by over 16% to $70.9 billion (₹6 lakh crore) in FY24.
4. Restrictions on IT and Services Exports
Many developed nations are tightening work visa policies and introducing data localization laws, directly impacting India’s IT and outsourcing sectors. Stricter H-1B visa norms and rising anti-outsourcing sentiment in the U.S. and Europe are making it harder for Indian tech professionals to access these markets. Between October 2022 and September 2023, Indian workers received only 72.3% of all H-1B visas issued. These restrictions weaken India’s dominance in the global IT sector, affecting employment and foreign exchange earnings.
5. Disruptions in Supply Chains and Higher Import Costs
Global protectionist policies are disrupting supply chains, making it harder for India to source essential raw materials like semiconductors, rare earth metals, and energy resources. Import restrictions in major economies like the U.S. and China are driving up costs for Indian manufacturers, particularly in electronics, defense, and renewable energy. India’s dependency on imports remains high—85% of crude oil is imported, and since the Russia-Ukraine war, rising oil prices have inflated India’s import bill. Additionally, India relies on China for 65-70% of its electronic components, making supply chain disruptions a serious concern.
6. Rising Costs for Indian Pharma Exports and the Generic Drugs Market
Stricter intellectual property (IP) laws and regulatory standards in developed economies are making Indian generic drug exports more expensive. The U.S. and EU have increased scrutiny on Indian pharmaceutical firms, delaying approvals and limiting market access. India’s credibility also took a hit when the WHO linked Indian-made cough syrups to acute
kidney failure cases and the deaths of 66 children in Gambia. Such incidents raise concerns about quality standards, affecting India’s pharmaceutical exports.
7. Weakening India’s Role in Multilateral Trade Agreements
With rising protectionism, developed nations are shifting focus toward regional trade blocs like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), leaving India at a disadvantage in global trade negotiations. India’s exclusion from major trade deals, such as the Regional Comprehensive Economic Partnership (RCEP), has already resulted in trade losses, and continued protectionist trends could further isolate the country economically.
8. Inflationary Pressures Due to Limited Access to Cheaper Imports
Protectionist policies often drive up global prices for essential goods like food, fuel, and industrial inputs, increasing inflationary pressures in India. Export restrictions by countries such as Indonesia (palm oil) and Russia (wheat) have led to higher costs for Indian consumers. For example, Indonesia’s palm oil export ban in 2023 caused edible oil prices in India to surge.
9. Impact on India’s Geopolitical Influence in Global Trade Policy
The growing trend of economic nationalism makes it harder for India to position itself as a key player in global trade governance. With developed economies increasingly relying on unilateral protectionist measures, WTO-led negotiations are losing relevance, limiting India’s influence in shaping fair trade policies. Despite India’s push for WTO reforms during its G20 Presidency in 2023, major economies like the U.S. and EU continued imposing unilateral tariffs, sidelining India’s efforts to promote multilateralism.
In an era of rising protectionism, India must strategically utilize Free Trade Agreements (FTAs) to expand market access, integrate into global value chains, and attract investments. Successfully navigating global trade disruptions requires a balanced approach—protecting domestic industries while advancing trade liberalization. Strengthening manufacturing capabilities, securing favorable trade terms, and enhancing economic diplomacy will be key to safeguarding India’s geo-economic interests and ensuring long-term competitiveness in the evolving global economy.
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