Rising protectionism signals end of free trade era: Over the last four decades, trade liberalisation created unprecedented global integration, lowered consumer prices, and lifted hundreds of millions out of poverty. That consensus is breaking down. Across advanced and emerging economies, governments are reviving industrial policies, raising tariffs, and imposing regulatory barriers in the name of national security, climate transition, and industrial revival. This trend is not temporary; it signals the beginning of the end of free trade. If unchecked, it will fragment global markets, raise costs, and weaken the very economies these policies claim to protect.
Trade liberalisation was not born of altruism, but of recognition that prosperity could be multiplied when nations traded freely. From the Uruguay Round that culminated in the creation of the World Trade Organisation in 1995, to China’s accession in 2001, countries chose openness over insularity. Tariffs fell, supply chains lengthened, and consumers reaped the benefit of lower prices. For developing nations, including India, freer trade meant access to global markets and a path out of poverty. It was this compact—open borders for goods and services in return for growth — that underpinned the golden age of globalisation.
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Rising protectionism in industrial policy
The European Bank for Reconstruction and Development warns that industrial policy is back with a vengeance. Its Transitions Report 2024 found that more than 90% of subsidies, grants, and loans in advanced economies explicitly favour domestic over foreign firms. The United States’ Inflation Reduction Act, the European Green Deal Industrial Plan, and China’s Five-Year Plan exemplify the new era of subsidy races.
What began as targeted support for green industries has broadened into outright discrimination against foreign players. Import and export bans, licensing restrictions, and carbon border taxes are proliferating. For lower-income countries, the risks are severe. Lacking administrative capacity, they often deploy the most distortive tools — such as export bans—inviting corruption and inefficiency. Instead of creating a level playing field, protectionist industrial policy distorts competition and pushes the world towards fragmentation.
Free trade and globalisation under threat
For decades, globalisation acted as a deflationary force, lowering costs and expanding consumer choice. Cross-border trade increased productivity, as knowledge and competition spread rapidly. Merchandise trade as a share of global GDP surged after 1980, spurred by China’s entry into the World Trade Organisation and India’s economic liberalisation.
Now that tide is receding. The IMF estimates that intensifying deglobalisation could reduce global output by up to 5% of GDP. The fallout will not be evenly distributed. Richer economies can cushion the shock with subsidies; poorer ones will be priced out of global markets. The new barriers—from Europe’s deforestation-free regulation to the looming carbon border adjustment mechanism—will fall heaviest on exporters in Asia, Africa, and Latin America.
The erosion of globalisation does not just threaten exporters. It strikes directly at consumers. As the outsourcing wave plateaus and supply chains are shortened for “resilience,” prices of everyday goods—from smartphones to textiles—are set to rise. The promise of cheaper products that globalisation delivered for a generation will be reversed.
Climate transition and trade friction
No policy area illustrates the contradiction more starkly than the climate transition. Decarbonisation is essential, but the manner of execution risks intensifying protectionism. As Daniel Yergin of S&P Global observes, the current energy transition is unprecedented because it is driven by policy rather than by technological advantage. Massive state-directed investments, subsidies, and regulatory mandates are now the norm.
While the goals are laudable, the means are problematic. Carbon tariffs, green subsidies, and restrictions on fossil fuel use risk creating “disorderly transition scenarios” where costs spike suddenly, fuelling inflation. Emerging markets, heavily reliant on commodity exports, will be hit disproportionately. Blocking Chinese solar panels or Indian steel on environmental grounds may satisfy domestic politics in Europe or the US, but it deprives the global system of the most cost-efficient suppliers.
The irony is stark: policies meant to fight climate change may fragment markets, create stranded assets, and trigger stagflation reminiscent of the 1970s. Consumers will face higher energy bills, and economies will grapple with supply shocks.
Inflationary consequences of protectionism
Protectionism does not merely distort trade; it worsens inflation. Globalisation once suppressed inflation by lowering labour and production costs. That cushion is gone.
Recent studies by the ECB and OECD highlight how deglobalisation, combined with ageing populations and rising debt, will push inflation structurally higher. Protectionist measures accelerate this trend by closing off efficient supply chains and forcing economies to rely on more expensive domestic alternatives.
Tariffs, non-tariff barriers, and industrial subsidies do not come free. Their costs cascade down to households in the form of higher consumer prices. Already, the World Trade Organisation reports a sharp rise in trade-restrictive measures since 2019, with 2023 marking a new peak. Left unchecked, these policies will hardwire inflation into the global system, forcing central banks to maintain higher interest rates for longer.
The looming end of free trade
The end of free trade will not be sudden, but gradual erosion is already evident. The United States, once the architect of the post-war liberal order, now leads the retreat from trade agreements. Europe follows suit with carbon tariffs and deforestation regulations. China, accused of unfair practices, responds with export restrictions on rare earths. Each defensive move provokes retaliation, locking economies in a cycle of protectionist escalation.
Consumers will be the first casualties, paying more for goods and services. Emerging economies will see export opportunities shrink. Multilateral institutions like the WTO, designed to enforce fair trade rules, are already weakened. Without corrective action, the global economy risks fragmenting into rival trading blocs—one led by the US and Europe, another by China, with the rest forced to choose sides.
The case for targeted industrial policy is not without merit. Green subsidies can accelerate decarbonisation; supply-chain diversification can improve resilience. But when such policies mutate into broad protectionism, they defeat their purpose. A rules-based framework—where subsidies are transparent, time-bound, and non-discriminatory—remains the best option.
Reviving multilateralism is critical. Agreements on carbon pricing, digital trade, and sustainable supply chains must be pursued under the WTO or similar platforms. Otherwise, unilateral action will dominate, creating precisely the fragmentation that economists warn against.
Ultimately, protectionism is a political choice. It may deliver short-term popularity, but it comes at long-term cost. Free trade is not an abstract ideal; it is the reason why consumers in Mumbai, Madrid, and Minneapolis can buy affordable goods from around the world. Abandoning it will make all societies poorer, less innovative, and more divided.