He said the share prices of the most efficient corporations in the world, including in the US, are where they are because of the global supply chains. Photograph: (Reuters)
Cautioning against protectionism, RBI Governor Urjit Patel has said where would giant American corporations like Apple, Cisco and IBM be if they had not sourced the best products and talent from across the world.
"I don't think that we have heard the last word on US policy talk about this because there is a push back internationally that the world has benefited from an open trading system," the Reserve Bank of India (RBI) governor said after delivering a lecture in New York.
He made the remarks in response to a question on the rise of protectionist tendencies in major world economies after he delivered the Third Kotak Family Distinguished Lecture, sponsored by the Raj Center on Indian Economic Policies at the Columbia University's School of International and Public Affairs.
He said the share prices of the most efficient corporations in the world, including in the US, are where they are because of the global supply chains.
"Where would Apple be, where would Cisco be, where would IBM be if they were not sourcing the best products and talent from across the world. And if policies come in the way of that, then the big wealth creators in a country that advocates protectionism are ultimately affected," he said yesterday.
Patel said the calls for protectionism in the US were on account of equity and domestic distribution issues which "textbook economics tells us should be addressed through domestic fiscal policy" such as taxation and income transfers.
He noted that using trade instruments for protectionism may take a nation on a trajectory different from that of growth.
"Using trade instruments like customs duties, border tax etc is not the most efficient way to do this. In fact, you could end up at somewhere else. You do not know what are the implications of some of these policies on equity and distribution besides objectives that you want to address," he said.
"It should be a domestic policy issue, using domestic fiscal policy if those are the objectives that need to be addressed," Patel said.