ACADEMIA Letters

Is the World Turning Inward?

Nirav Shedge, D.G. Ruparel College, Mumbai

The covid19 pandemic is the greatest economic uncertainty the world has ever witnessed
and by far the most challenging where countries plunged into recession (World Bank, 2020).
Countries around the world closed their borders and imposed draconian measures to restrict
the spread of this invisible enemy. Initially, when the covid19 virus started spreading, the
restrictions on international trade were also supported by bans on international travel. This
led to severe disruptions mainly in the hospitality and aviation sectors (OECD, 2020). As
regards global trade, the data from the World Trade Organization states that international
trade declined by 18.5% in the second quarter of 2020 (WTO, 2020). Indeed, the covid19
pandemic is also, particularly a serious threat and a challenge to small and medium enterprises
who have been at the forefront due to the pandemic scarring, given the supply and demand
shocks. Following these macroeconomic shocks, the economic uncertainty has further led to
a substantial rise in unemployment, a fall in wages, and a drop in world output (ILO, 2021).
Given the economic challenges induced due to the pandemic, this leaves us with the ques-
tion, is the world turning inward? The answer to this question can easily be supported by
several facts and historical evidence. For decades, academic literature has shown that when
global economic developments are reviewed, it is often seen that countries prefer to adopt a
protective trade policy as a response to tackle the global economic crisis (Yilmaz, 2021). With
the collapse of major economies in the world during the great depression of the 1930s, most of
the developed nations adopted protectionism as a tool to battle massive loads of unemployment
and business closures. Similarly, during the global financial crisis, several countries-imposed
trade restrictions, which were maintained for a substantially longer period. The following
graph depicts the trade barriers that were put in place in 2008 and were still in effect seven
years later.
Similarly post the global financial crisis, as a response, governments implemented protec-

Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Nirav Shedge, niravshedge2608@gmail.com

Citation: Shedge, N. (2022). Is the World Turning Inward? Academia Letters, Article 4862.
https://doi.org/10.20935/AL4862.

1
 Figure 1 – Trade barriers (2008-2015)

tionist policies to safeguard their producers, infant industries, avoid stagnation, and mitigate
the crisis’s consequences. This is synonymous with the current times. Several nations have
adopted protectionism as a tool to revive their economies, including the major emerging mar-
kets and developed economies (Davar, 2020). Moreover, we are seeing rising protectionism,
particularly for medical equipment as the following table 1 indicates.

Table 1 - Tariff Restrictions on Medical equipment.

The covid19 induced serious protection in medical equipment goods immediately as coun-
tries started witnessing serious concerns with regards to the pandemic. Moving on to protec-
tionism policies, firstly, we have India which is at the forefront of protectionism in inter-
national trade. It has made some moves in the face of one of its greatest challenges since

Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Nirav Shedge, niravshedge2608@gmail.com

Citation: Shedge, N. (2022). Is the World Turning Inward? Academia Letters, Article 4862.
https://doi.org/10.20935/AL4862.

2
independence. One is ‘atmanirbharta,’ also known as ‘Self-reliance,’ which is the new eco-
nomic paradigm in India, or sometimes described as a form of protectionism (Davar, 2020).
Moreover, alongside increases in tariff rates, India consciously decided to stay out of the Re-
gional Comprehensive Economic Partnership (RCEP) in November 2019 (Jain, 2021). On all
these parameters, it is clear that India is turning inward, with more and more protectionism in
international trade.
In addition to India, there is also the United States. The Foreign Investment Risk Review
Modernization Act has taken effect in the United States. It gives the Committee on Foreign
Investment in the United States (CFIUS) the authority to address national security concerns
about foreign exploitation of specific investment structures. It has passed legislation requiring
all entities involved in the purchase or leasing of real estate to notify the CFIUS. Individuals
are also urged to notify the CFISU if they are enlisting the help of a foreign person to ac-
quire control of a company. Aside from that, any acquisition in industries such as oil and gas,
telecommunications, power, defence, and finance will have to be reported. The essence of the
size of transactions covered by CFISU means that transactions may be blocked if the Com-
mission detects concerns about obtaining national collateral as a result of those transactions
(Davar, 2020).
Furthermore, even the European Union, as well as its geographically close neighbour the
United Kingdom has adopted some policies to restrict capital flows. First, as regards the
European Union, the member states should keep an eye on if foreign investment is likely to
affect public order, security, key infrastructure, technology, and personal data. Various other
measures towards protected trade principles have also been adopted in the United Kingdom.
A national security and investment bill has been submitted to the British Parliament. This
will ask the Foreign Minister to consider certain acquisitions, especially those that threaten
national security (Davar, 2020).
More to the point of rising protectionism in international trade & finance, we also have
Canada, France, and Italy that have imposed restrictive measures. As regards Canada, certain
investments will not undergo thorough additional scrutiny under the Investment Canada Act.
Similarly, with France, there will be an additional screening of certain technologies, includ-
ing medical research, and biotechnology. Finally, Italy also included some sectors such as
health, banking, insurance companies, and financial infrastructure into the category of further
screening amid the pandemic (Ortiz-Mena, 2020).
One could easily argue (based on the aforementioned evidence) that the world is increas-
ingly turning inward. In other words, protectionism is making a comeback, similar to what the
world witnessed after the great depression of the 1930s, and in the post-global financial crisis.
Furthermore, if advanced economies turn inward, it is possible that other emerging markets

Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Nirav Shedge, niravshedge2608@gmail.com

Citation: Shedge, N. (2022). Is the World Turning Inward? Academia Letters, Article 4862.
https://doi.org/10.20935/AL4862.

3
and developing economies would also suffer as a result of this move. To make my point,
if major economies around the world turn inward, global aggregate demand might collapse
dramatically. Lower external aggregate demand, particularly from advanced and emerging
economies to developing and underdeveloped economies, erodes the benefits of outward ori-
entation if the developing and underdeveloped economies decide to capitalize on their com-
parative advantage and produce for the world. Second, it could even raise the cost of produc-
tion for labour-intensive commodities in advanced economies, keeping in mind that academic
literature favors capital-intensive techniques in advanced economies.
Overall, it can be argued that the world is turning inward, which is quite worrisome given
the fact that years of evidence and academic studies have argued and demonstrated the benefits
of free trade, as well as how it may help a country boost its export performance (Panagariya,
2019). Strong evidence by (Balanika & Vasiliki.) has shown that open economies benefit
greater economic growth rates, and micro econometric research reveals that enterprises who
enter the export market experience faster growth rates as well. However, the recent data does
not support the argument of free trade. The following figure 2 shows the trend of decelerating
trade openness over the past few years.

Figure 3 - Index of Trade Openness. Source - United Nations (UNCTAD).

As can be seen, the trend of trade openness has been declining since 2010, i.e., post the
global financial crisis. Additionally, the trend has now been exacerbated due to the covid19
pandemic wherein the invisible enemy caused international trade to collapse by 8.9% in 2020
(Bank of England, 2021). From the data given, we can conclude that we are seeing a rise in

Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Nirav Shedge, niravshedge2608@gmail.com

Citation: Shedge, N. (2022). Is the World Turning Inward? Academia Letters, Article 4862.
https://doi.org/10.20935/AL4862.

4
deglobalization mainly due to the pandemic induced disruption, and the scarring of the global
financial crisis.
Although the pandemic has had a devastating economic impact, particularly on small busi-
nesses, protectionism is not a viable strategy to respond to such a crisis. We need to encourage
more of an open economy as international trade makes countries richer through specialization,
while deglobalization through restrictions on trade materializes the opposite. Moreover, the
smooth flow of goods & services will also solve supply chain concerns and aid in the control
of inflation, which has been one of the major challenges due to covid19 disruptions.
The conclusion is clear: closing trade borders and tightening trade restrictions is tanta-
mount to killing the goose that lays the golden eggs. The world should liberalize and increase
export performance, especially now that the world is facing one of its greatest difficulties.

References
1. Balanika, P., & Vasiliki. (n.d.). The impact of trade openness on economic growth -
Evidence in developing countries. Erasmus school of economics, pp. 7-8.

2. Bank of England (2021). Google. How has Covid affected Global Trade?

3. Davar, R. (2020, December). Protectionism in the COVID-19 era: A step back for the
global economy? Financial Express.

4. International Labour Organization (ILO). ILO Monitor. Covid19 and the world of work.
7th edition.

5. Jain, M. (2021). Was India Right in Not Joining RCEP? A Cost-Benefit Analysis. A
Journal of International Affairs - SAGE.

6. OECD (2020). Google. Covid19 and the aviation industry: Impact and Policy re-
sponses.

7. Antonio Ortiz-Mena (2020). MarshMcLennan. Covid19 and Protectionism: The worst

may be yet to come.

8. Panagariya (2019). Book. Free Trade & Prosperity, Trade Openness and Growth. Em-
pirical evidence. Pg. 93.

9. World Bank (2020). Google. Covid19 to plunge global economy into worst recession
since World War II.

Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Nirav Shedge, niravshedge2608@gmail.com

Citation: Shedge, N. (2022). Is the World Turning Inward? Academia Letters, Article 4862.
https://doi.org/10.20935/AL4862.

5
 10. WTO. (2020). Google. World trade organization. Retrieved from World Trade Orga-
nization.

11. Yilmaz, B. (2021). PROTECTIONISM TENDENCIES IN INTERNATIONAL TRADE:

THE EFFECT OF COVID-19…. In Y. B, Current Economics and Management Sci-
ences Research (pp. 2-

Academia Letters, February 2022 ©2022 by the author — Open Access — Distributed under CC BY 4.0

Corresponding Author: Nirav Shedge, niravshedge2608@gmail.com

Citation: Shedge, N. (2022). Is the World Turning Inward? Academia Letters, Article 4862.
https://doi.org/10.20935/AL4862.