Cold War years being re-enacted, shows in trade, says Economic Survey

New Delhi: The world is seeing a “re-enactment of the Cold War era”, the Economic Survey warned, undermining growth and trust in the current global economic system.

Setting out the medium-term outlook, the Survey presented on Friday said rising geopolitical tensions and the breakout of war have further intensified underlying fissures in the global economy. 

“In a re-enactment of the cold war era, countries are once again getting grouped into two blocs and phrases like friend-shoring have come to play centre-stage in global policymaking.

“Tensions over trade, technology standards, and security have been growing for many years, undermining growth and trust in the current global economic system. Therefore, fragmentation-economic, social and cultural – is a direct consequence of the imposition of a ‘one-size-fits-all’ emission, as well as social and labour standards by western nations.” 

The Survey said there are growth implications of geo-economic fragmentation (GEF).

“The consequences and costs of GEF are propagated via all the channels whereby countries engage with each other economically. Trade is the main channel through which fragmentation is reshaping the global economy. The capacity of trade to incentivize within-industry reallocation and generate productivity gains is getting increasingly stifled. 

This is most evident in the increase in the trade-restrictive measures imposed by countries. “

At cited figures released by the World Trade Organization (WTO) as pointing to a sharp rise in the coverage of trade-restrictive measures by WTO members between mid-October 2023 and mid-October 2024, compared to November 2023.

As per estimates, the value of trade covered by the 169 new trade-restrictive measures introduced between October 2023 and October 2024 is $887.7 billion, which is half a trillion dollars more than the value of trade covered by restrictions introduced in the preceding year, which stood at $337.1 billion.

“IMF observes that trade fragmentation is much more costly this time because, unlike the start of the cold war when goods trade to GDP was 16%; now that ratio is 45%. Less trade implies less knowledge diffusion, a key benefit of integration, which could also be reduced by fragmentation of cross-border direct investment.”