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Globalised to Restricted World Again: Lesson from the Present and Past Geo-economics

by Rinku Khumukcham
0 comment 5 minutes read

By – Dr Mayengbam Lalit Singh,
Assistant Professor, Dept. of Economics,
Kha Manipur College, Kakching

During pre World War II (Colonial period), we have learnt that there were freer trade between colonies and their coloniser (intra trade). Most of the colonisers from Europe built their isolated empires taking the advantage of these intra trade systems. However, since the end of the World War II, such restricted trade among nations got collapsed. Erstwhile trade rules framed by colonisers were completely obsolete as compared to new trade rules during post war period. Establishment of GATT ensures freer trade among the nations across the globe irrespective of level of respective participation of member nations. However article XXIV of GATT provides grant of establishing for regional trading partners without bypassing international trade. Under this article regional trading agreements flourished in Europe in late 1950s. In similar objective in North America also, NAFTA was formed. Contrary to restricted trade during pre WWII, these trading partners provided flexible tariff among the members. It never undermines international trade of such members with the rest of the world. Till today, it is officially reported that many successful regional trading partners mushroom across all the continents as well as inter-continents. Through this trading partners, many countries expertise in technological innovation that is termed as “Flying Geese Approach”. South Korea, and Japan expertise in the manufacture of vehicles and electric machines through this above mentioned approach when they form trading partners with USA. Similarly, many South East Asian countries including China started globalisation of their economies since late 1970s. As a part of globalisation, many manufacturing companies started opening their overseas branches in these countries. The economic factors behind shifting of manufacturing companies are such that it reduces huge transport cost; it obtains economies of scale since wage in these countries are comparatively low; and huge market potential in these countries. Driven by these factors, many companies from USA, and Western Europe started shifting their production plants to these countries especially in China. These western based companies import such manufactured goods to their home country and still find economies of scale due to low cost incurred to wage and free import tariff. For an example, USA has relied its demand on imported pharmaceutical drugs which are manufactured by its companies in China taking advantages of cheap labour. Imports from China has increased in multiple fold since the later joined WTO in 2001 and USA has promised free tariff on the goods if China signed WTO frameworks. However, there are always pros and cons of such free trade policies and clearly surfaced in European Union (EU) since the wake of 2000s. Ominous phenomenon of free trade varies depending on the level of development of a country. Less developed Eastern EU countries experienced more agrarian oriented development where countries specialised in agricultural production and moved away from manufacturing of engineering goods according to articles. Wage level in pre EU is reportedly higher as compared to wage level during post EU era and huge numbers of skilled labours are found migrated to Western EU countries. Among the developed EU countries also, there is always threat of cheap labours to high waged local labours. That is the reason why Britain voted for BREXIT in their referendum. One of the fear factors against the globalised super nation is financial austerity which has been faced by many EU nations that poses U-turn from globalised to restricted world. At present, USA is revoking protocols of free trade to restricted trade and it covers not only its trade partners like China but also its partners of NAFTA (Mexico and Canada). The reasons why USA pursues this stringent actions are such that it has been facing severe financial debt; its manufacturing companies have been shifting plants to other countries; and there is growing threat of unemployment in it. Recently, USA levy 30% of import tariff on those goods imported from China and the later also retaliated with similar tariff levels on goods imported from the former. However, the big question is, would this action bring its companies back to USA again. Many economists opine that companies will not come back to home instead they may shift their plants to the countries friendly to USA. Aftermath reaction of shifting these plants to China is that Chinese companies acquire technological knowhow through Flying Geese Approach. These companies had apocalypse since long back and nurtured their own innovations. That’s why they have their patents in many electronic items and the visible example is introduction of Huawei, the 5G network with its own android operating system which is going to be exported to many countries in the world. Chinese local firms start export of its own manufactured goods (which is copied first from USA firms and innovated with additional technologies) through its Belt and Road Initiatives. Highest incidences of such trade war between USA and China will be borne by their on consumers where consumers’ surplus will be robed away by their governments in the form of tariff revenue. Hence, the present world is experiencing restricted trade system which had witnessed a century ago. This yields in restricted trade blocks where there will be free exchange of goods and technologies among the partners. Moreover, it will lead to regional economic power then multi polar world where there will be competitive edges in all respects.

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