Economic Nationalism on Trial: Tariffs, Treaties, and the Future of Global Markets

1.Introduction

Economic nationalism has once again taken the centre stage in global policymaking, but the renewed popularity of protectionist tools comes at a steep price. Around the world, governments are reaching for tariffs, subsidies, and industrial policies to signal strength at home and win political points. India is no exception. Under the Atmanirbhar Bharat (self-reliant India) agenda, tariff increases and domestic programs have been presented as ways to build resilience and pride. But the economic reality reveals a different picture: small businesses are dealing with higher input costs, households are struggling with inflation, and trade relationships with important partners are becoming weaker.

Similar patterns are appearing worldwide. Washington has imposed “national security” tariffs, and the European Union has suggested a Carbon Border Adjustment Mechanism (CBAM). While developed countries might manage some of these costs, protectionism could backfire for developing nations like India. The IMF says that the ongoing trade fragmentation might cut global GDP by up to 7%, equivalent to around $7 trillion. Developing economies such as India are among the most affected. Already, the IMF has trimmed India’s 2025 growth forecast from 6.5% to 6.2%, because of uncertainty about tariffs and rising global trade tensions. 

Source: https://www.bloomberg.com/news/articles/2025-04-22/imf-slashes-global-growth-forecast-says-downside-risks-dominate

This blog argues that economic nationalism does less for empowerment, and instead, makes inequality worse, hurts competitiveness, and weakens the global frameworks that countries like India depend upon. What appears to be a political win in the short-term risks being an economic liability for millions in the long run.

2. The Cost of Protectionism

Looking back, protectionist policies present powerful and dominant political images. Tariff rises allow governments to posture, shield local producers, and declare that they are guarding jobs for the local population. India has frequently resorted to this tactic by hiking import tariffs on electronics, steel, and textiles. But higher tariffs mean raised prices for essential goods like mobile phones, appliances, and construction materials, putting a strain on the common households and small businesses affecting one third of the GDP.

Global institutions warn that this move toward fragmentation has long-term costs. The IMF estimates that geoeconomic divides could cut global GDP by 2% in the short term and up to 7% in a severe scenario. For a developing economy like India, these losses are particularly painful because they weaken growth, investment, and job opportunities.

This is especially evident in strategic sectors. From semiconductors to solar panels and electric vehicles, governments are putting billions into subsidy competitions. India’s Production-Linked Incentive (PLI) scheme aims to increase domestic manufacturing. It is similar to the U.S. Inflation Reduction Act. In practice, these schemes tend to benefit larger firms that can more easily meet eligibility requirements, while smaller businesses struggle to compete.

2.1 India’s Export Dilemma: Shrinking Opportunities

India faces an export challenge in the current global trade environment. While India has not broadly raised tariffs on its own exports, recent external tariff measures by major partners have constrained Indian market access - notably the United States’ doubling of tariffs on Indian goods to as high as 50 % in 2025, in part linked to India’s continued purchase of Russian crude oil -  a move that has been reported to erode competitiveness and shrink Indian exports, especially in labor-intensive sectors. Past disputes at the WTO have shown how protectionist trade barriers, whether imposed by India or its partners - weaken India’s comparative advantages in services and agriculture and complicate market access. This reduces opportunities for farmers, service providers, and small producers.

In the end, the public has to bear the greatest cost. Reduced export demand caused by external tariff measures and sanction-linked trade restrictions, higher prices of key industrial inputs such as steel, machinery, fertilizers, and electronic components, and more importantly, costlier consumer goods all contribute to job losses and rising inequality. Even if economic nationalism gains popularity in the short run, its long-run consequences may include reduced competitiveness, inefficiencies in domestic production, and increased economic hardship for ordinary citizens.

3. Economic Nationalism on Trial: The Legal Dimension 

3.1 India’s WTO Strain and Trade Disputes

The current tariff war is an indication of the far-reaching problems of the multilateral trading system. India has had strained relations with the WTO for several reasons such as, weakening compliance with treaties, and the reported dysfunction of the appellate body. It has also experienced tense relations in the past with other leading world trading partners.

Some recent occurrences, like the European Union's move to take action against Information and Communications Technology (ICT) tariffs agreements and the sugar controversy - brought forward by major agricultural export nations that claim India distorts international markets, have heightened tensions.

These developments have not only strained India’s relations but may  raise certain credibility issues in future. The BASIC nations' objection to the EU’s Carbon Border Adjustment Mechanism (CBAM), amplifies the paradox of India’s own protectionist policies in global trade, as India criticises the EU for using climate regulations to restrict imports while itself relying on tariffs and regulatory barriers to shield domestic industries. This objection highlights how India opposes trade restrictions imposed by others, yet frequently employs similar defensive tools in its own trade policy, revealing a selective and ambiguous approach to trade liberalisation.

3.2 The Bigger Risk

The Indian approach reflects a legal paradox between economic nationalism and global integration opportunities. This is clearly illustrated via India’s withdrawal from the RCEP (Regional Comprehensive Economic Partnership) negotiations in 2019. The RCEP is the world's largest FTA (Free Trade Agreement) around the Pacific-Asia corridor, consisting of fifteen countries. 

This withdrawal seems to come primarily from fears of increased Chinese imports and concerns about domestic industry protection. This move clearly reflects prioritisation of national interest over economic opportunities. But such decisions are economically costly, depriving India of market access and global value chains. Protectionism has also caused significant delays in talks about bilateral FTAs. Here, the approach is of phase-in periods (a gradual schedule for reducing tariffs or opening markets over time so domestic industries can adjust before full liberalisation takes effect), indicating a cautious and skeptical outlook towards global trade liberalisation.

However, this defensive strategy overlooks potential offensive opportunities in services, pharmaceuticals, and other sectors where India holds competitive advantages. This pattern creates a political-economic image where short-term protection takes precedence over long-term competitive gains and market control.

4. Politics vs People: The Cost of Economic Nationalism

India’s trade policies signify a stark gap between political manifestation and economic realities. The declining share of India in global exports due to numerous factors, places us at crossroads. Here, the decision lies in short-term political heroism or long-term economic gains with a strong global presence. The ongoing tariff wars have been a catalyst for weakening India’s position globally, with no immediate recovery. India’s attempt to mend relations with China seems to be a positive step. However, historical experience suggests that these relations remain fragile and subject to recurring strategic and economic tensions. The ultimate test now is between protectionist policies or economic project strength. The cost of choosing wrongly falls not on politicians who benefit from protectionist heroism. It falls on ordinary Indians, paying higher prices, and missing global opportunities while their leaders promise them national greatness.

5. Conclusion

Economic nationalism increases long-term vulnerability whilst creating an illusion of strength. India has more potential to build competitive industries, pursue high-quality trade agreements, and capitalize on its strengths in technology, services, and pharmaceuticals than it does in imposing tariffs. In the short term, protectionism may temporarily shield certain jobs, but in the long term, integration can create millions more. Whether India becomes a global leader or stays a reluctant follower will depend on its choice: openness or isolation.

About the Authors:

Vinayak Topa is a final-year student at Dr. B.R. Ambedkar National Law University, pursuing a BA LLB (Hons.) with a specialization in Business Law. His academic interests lie in tax and finance law, with a particular focus on how legal frameworks shape business practices. He actively engages in legal research and discussions on contemporary issues, with the aim of contributing to practical and impactful solutions in the field.

Divyanshi Saha is a graduate of the University of California, San Diego, where she earned a BSc in Business Economics with a minor in Marketing. She has a strong interest in the global economy, international trade, and consumer behavior, and enjoys using writing to make complex economic ideas more accessible. She is particularly curious about the intersection of psychology, markets, and policy, and hopes to pursue a future in consulting and strategy.