Economic Nationalism

One key element is protectionism, which involves shielding domestic industries from foreign competition. This is often done through tariffs, which increase the cost of imported goods, making domestic products more competitive. For example, if India imposes a tariff on imported steel, Indian steel companies can sell their products at a higher price because the imported steel is now more expensive.

Another tool is import quotas, which limit the quantity of specific goods that can be imported. This directly restricts foreign competition, guaranteeing a certain market share for domestic producers. Imagine India setting a quota on imported Chinese toys; this ensures that Indian toy manufacturers can sell a certain number of toys regardless of the price or quality of Chinese toys.

Subsidies are direct financial assistance from the government to domestic industries. These can take the form of cash payments, tax breaks, or low-interest loans. Subsidies lower the production costs for domestic companies, allowing them to sell their goods at lower prices and compete more effectively with foreign firms. For instance, the Indian government might subsidize the domestic textile industry to help it compete with cheaper textiles from Bangladesh.

Currency manipulation, though controversial, can be a tool of economic nationalism. By devaluing its currency, a country can make its exports cheaper and imports more expensive, boosting domestic production and reducing its trade deficit. However, this can provoke retaliatory measures from other countries.

Economic nationalism often emphasizes local content requirements, which mandate that a certain percentage of a product must be produced domestically. This encourages companies to source materials and components from local suppliers, supporting domestic jobs and industries. For example, India might require that a certain percentage of the components used in solar power projects be manufactured in India.

A critical justification for economic nationalism is national security. Countries may seek to protect industries deemed essential for defense or critical infrastructure, even if it means higher costs for consumers. This is why many countries maintain domestic arms industries, even if they could import weapons more cheaply.

Economic nationalism can clash with free trade agreements. While free trade aims to eliminate trade barriers between countries, economic nationalism seeks to maintain or erect such barriers to protect domestic interests. This tension often leads to complex negotiations and compromises in trade agreements.

One risk of economic nationalism is retaliation from other countries. If one country imposes tariffs on imports, other countries may respond with their own tariffs, leading to a trade war that harms all parties involved. The US-China trade war under President Trump is a prime example.

It's important to distinguish economic nationalism from economic patriotism. Economic patriotism encourages consumers to buy domestic products out of a sense of national pride, without government intervention. Economic nationalism, on the other hand, involves active government policies to promote domestic industries.

UPSC often tests the balance between economic nationalism and India's commitments to international trade organizations like the WTO. Questions might explore whether India's policies are protectionist or designed to promote fair competition and strategic autonomy.