Moneycontrol Pro Panorama | Turning Inward: How nations are redefining their economic strategies

The overall participation in the economy need to be boosted.

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In the news this week is Chinese Premier Li Qiang’s Government Work Report that signals a decisive shift from export-oriented to inward-looking economic policies. While the broad brush agenda of the country has been to boost its local economy since its collapse during the pandemic, the 2025 agenda sets more ambitious targets.

Underscoring this is its prioritising domestic consumption revival as the No.1 work task, up from its No.3 position last year. This is a logical step, given that consumption is the largest contributor to China’s gross domestic product (GDP). “Given the problems on the external front, it is now doubling down on promoting domestic consumption to counter the trade war,” says Manas Chakravarty in this article, where he analyses threadbare China’s Two-Sessions policy meet.

To do so effectively, there is a bold departure from restrictive fiscal policies to higher spends on tech-driven innovation, incorporating AI-led practices to boost manufacturing efficiency, destocking property markets, looser monetary policies in spite of lower inflation targets and importantly, a rise in deficit from 3 percent to 4 percent of GDP!

Clearly, the evolving landscape of US trade tariffs, barriers on technology transfer and sanctions are pushing China, that thrived on exports to the world, to look at reviving its own domestic economy.

The point to take cognisance of here is that it is not only China that is looking inward. A few years ago, India, under the Modi government, unveiled the Make-in-India and Aatmanirbhar Bharat programme to boost self-reliance and lower import dependence. Some economists even look at UK’s decision to exit the European Union (Brexit) a decade ago, as a measure to focus on its internal economy.

Cut to now, it is US President Donald Trump’s stance to look inward and impose hefty tariffs on goods imported into the US that has not only sparked fears of trade wars but also of uncertainty over the free movement of goods across countries, supply chain disruptions and the consequent cost-push inflation.

The developed economies, too, seem to be left with little choice but to fire up their own investments and consumption. For instance, Germany has decided to invest in transportation, energy grids and housing, apart from huge investments in defence. Earlier this year, the UK government also upped its defence expenditure outlay -- reportedly the highest since the Cold War -- as it enters an era of intensifying geopolitical competition and conflict.

Over time, these policies could reshape economic relations among countries. For instance, along with protectionism, China is committed to luring investments from the rest of the world (other than the US). European nations, too, are looking for lucrative markets for investments.

In the final analysis, who wins and who loses is anybody’s guess. But the recent announcements by heads of many countries certainly suggests that globalisation is now on the backburner, and it is the dawn of a new era of inward-looking policies.

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Vatsala KamatMoneycontrol Pro