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A Time to Reinvent
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Context
The global economy faces rising tariffs, trade diversion, and technological disruptions, posing challenges for emerging markets to sustain growth.
Challenges for Emerging Markets
- Tariff Pressures: The imposition of non-tariff and tariff barriers, such as US tariffs rising to 2.7%, undermines the global efficiency gains of trade.
- Trade Diversion Risks: Ongoing trade wars, particularly US–China tensions, trigger trade diversion that adversely impacts smaller emerging economies.
- Shrinking Export Competitiveness: Surging Chinese overcapacity, alongside new protectionist measures, erodes the competitiveness of countries like India and Indonesia.
Technology and Domestic Pressures
- Technological Transition: Global manufacturing is shifting toward labour-substituting, capital-intensive industries, reducing employment opportunities in emerging economies.
- China’s Expansion: China’s sustained investment across manufacturing and exports heightens competitive stress for developing economies.
- Structural Vulnerabilities: Countries with young populations and weak industrial bases, particularly in South Asia and Sub-Saharan Africa, face difficulty in sustaining jobs and income.
Policy Options for Emerging Economies
- Reform Imperative: Emerging markets must advance next-generation reforms in land, labour, GST, health, and education to sustain growth.
- Beyond Capital-Labour Balance: Success depends on strengthening productivity, skills, and innovation rather than relying only on labour cost advantages.
- Global Orientation: Economies must maintain openness to trade and competition, ensuring resilience against protectionism and external shocks.
Practice Question
“Amid rising global protectionism, technological shifts, and trade disruptions, emerging markets face the risk of stagnation. Critically evaluate the challenges and suggest policy strategies that India must adopt to sustain inclusive growth in this changing global order.” (250 words)
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