India does not have to choose between protectionism and globalisation

This article is authored by Baran Pradhan, independent researcher and Shifali Goyal, research associate, CSEP, New Delhi.

Those who once led the free-trade consensus are now building new walls. So as India proceeds to sign more trade deals, policy makers need to consider whose income rises, who benefits from cheaper goods, and who bears adjustment costs?

Trade between India and US

Countries change course with time, sometimes quite dramatically. Trade policy is no exception. In September 2001, President Bush waived nuclear-related sanctions on India. Twenty-five years later, in September 2026, President Trump signed the Lindsey O Graham Sanctioning Russia and Iran Act into law, allowing duties of up to 100% on major buyers of Russian oil, including India. The US has returned to unilateral tariffs and reciprocal demands. The European Union has also brought its carbon border adjustment mechanism into force and plans to implement a deforestation regulation from the end of 2026. Trade agreements and related trade rules are increasingly embedding labour and environmental conditions, shaping market access alongside tariffs. While combating carbon leakage, forced labour and deforestation are genuine goals, incorporating such objectives into trade policy can create compliance costs that vary across countries and by exporter size.

These developments are not accidental but also reflect the historic distribution of gains from trade. Trade can enlarge the pie, but it does not decide who receives the slices. When the gains no longer look politically and economically acceptable, economies move to other tools to reclaim them.

World merchandise trade has expanded massively, with trade volumes now around twenty times their 1960 level. UNCTAD reports that the share of developing economies in world merchandise exports rose from 29% in 2000 to 46% in 2024. Trade-supported growth has helped lift more than a billion people out of extreme poverty, especially in China and India. The World Bank’s estimates show that inequality between countries fell after 1990, and the global Gini coefficient declined from about 70 points in 1990 to 62 by 2019, because poorer countries caught up with richer ones. While trade did not achieve this alone, it helped connect poorer economies to markets, capital and technology. Yet the reach of this success has been uneven. Least-developed countries still account for only around 1% of global trade.

Trade can narrow gaps between countries while widening them within countries. Its gains are often broad and spread across the economy, while its costs can be concentrated in particular industries, workers and places. Consumers may benefit from cheaper imports even as workers in industries facing strong import competition lose wages or jobs. People do not experience trade as a theorem, but through wages, jobs, prices, insecurity and status. The China shock in the US and Europe made these adjustment costs difficult to ignore, given the evidence of employment and wage losses in labour markets exposed to Chinese import competition. In today’s world, protection increasingly extends beyond conventional tariffs to other mechanisms. A carbon levy at the border, a ban on goods linked to forced labour, or a requirement to prove that soy or coffee is deforestation-free can favour exporters that already have the capacity to comply. For instance, a firm that can trace every input, certify every worker, and absorb legal costs can access markets more easily than a small producer that cannot. What looks like a universal standard on paper can, therefore, have unequal effects in practice. These measures are also reshaping trade relations between countries.

India’s position is especially revealing. While trading with West, it faces standards and secondary tariffs; at home, firms and farmers resist further opening because they fear job losses and price shocks. India’s decision to stay out of RCEP in 2019 reflected some of these concerns, particularly over dairy, agriculture, and manufacturing. In 2026, farmer groups and trade unions have also opposed elements of the proposed India-US trade arrangement on similar grounds. India therefore seeks access abroad while preserving protection at home. Yet caution has a cost. A tariff protecting one producer can raise another’s input costs, increase prices, and provoke retaliation, which can have its own distribution implications.

The introduction of new protectionist measures suggests that even as India signs more free trade agreements, protection is becoming harder to see and harder to contest. That is why the choice is not between protectionism and uncritical openness. In fact, what is important is to focus on the distribution of its gains. The challenge is not to retreat from globalisation, but to make it compatible with shared prosperity. Adjustment cannot remain an afterthought to the signing ceremony. Workers and regions need routes to new opportunities; smaller exporters must meet new standards; industrial support should raise productivity rather than preserve incumbents. Globalisation helped make the world richer and, in an important sense, more equal. That is worth defending. But people do not live inside an aggregate. The next phase of openness will depend on whether its gains can travel farther than their grievances.

(The views expressed are personal)

This article is authored by Baran Pradhan, independent researcher and Shifali Goyal, research associate, CSEP, New Delhi.