Topic: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment
Q5. Trade policy uncertainty is a hidden cost that disproportionately burdens developing exporters. Examine its impact on investment and supply-chain decisions. (15 M)
Difficulty Level: Medium
Reference: DTE
Why the question
Rising tariff volatility and differentiated market access, as highlighted by UNCTAD, is reshaping export competitiveness globally.
Key Demand of the question
The question requires explaining why trade policy uncertainty is a hidden cost and why it disproportionately burdens developing exporters. It then expects analysis of its impact on investment and supply-chain decisions, followed by a practical way forward.
Structure of the Answer
Introduction
Define trade policy uncertainty as unpredictability in tariffs, exemptions and market access, and link it to a “risk premium” on exports that weakens developing countries’ competitiveness.Body
- Briefly explain how uncertainty raises transaction, compliance and financing costs for developing exporters.
- Analyse its impact on investment decisions such as capacity expansion, export-oriented FDI, and technology upgrading.
- Examine supply-chain impacts like GVC reconfiguration, friend-shoring pressures, inventory build-up, and market diversification.
- Suggest way forward focusing on export diversification, logistics and cost reforms, risk-management instruments, and stronger trade diplomacy.
Conclusion
End with a forward-looking line on building resilience through predictable domestic policy, diversified export markets and competitiveness beyond tariff dependence.
