How open are the world’s largest economies to trade?

The Hinrich-IMD Sustainable Trade Index (STI) evaluates the ability of 30 global trading economies to engage sustainably in trade using 72 economic, societal, and environmental indicators. These indicators include measures of trade openness such as tariff and non-tariff barriers in force, count of regional trade agreements in force, capital account liberalization, and investment freedom. Key insights into the trade openness of large trading economies are summarized below.

• Tariff barriers in force: The US ranks as the economy with the highest count of distortive tariff measures in force in this year’s Index, with India and China also intensifying their use of tariff measures as part of their broader trade protectionist strategy and to address unfair trade practices. The number of trade distortive tariff measures applied by the US in 2023 surged to 5,516 from 5,095 in the previous year; China increased its use of tariff measures by 25% from 742 in 2022, whilst those of India increased by 16% from 2,517 in 2022 (Hinrich-IMD STI 2023 and 2024). This rise underscores a growing trend toward using tariffs to shield domestic industries from foreign competition and to counter unfair subsidization and alleged dumping of imports in sectors such as steel and aluminum which is increasingly viewed through a national security lens. India also maintains high tariff rates (average MFN rate of 14% across all products), reflecting its import substitution approach rooted in its post-independence strategy. The legacy of this policy, coupled with a general wariness towards international trade, has led India to adopt protective measures to safeguard its local industries.
• Non-tariff barriers in force: China ranks as the economy with the highest count of trade distortive non-tariff measures in force (219,162) in STI 2024. Prominent types of non-tariff measures adopted by China included stringent sanitary and phytosanitary standards, technical barriers to trade, import licensing requirements, and export restrictions. Compared to 2022 levels (179,228), the increase in non-tariff measures reflects China's strategic shift towards greater economic protectionism amid rising geopolitical tensions and an emphasis on self-sufficiency. Other large economies such as the US, the UK, and India also have a moderately large number of non-tariff barriers in place with the US adding 24,533 new non-tariff measures in 2023 (Hinrich-IMD STI 2023 and 2024).
• Regional trade agreements in force: The UK topped the rank as the economy with the largest number of regional trade agreements in force (38) in 2023. Since its departure from the European Union, the UK has been actively negotiating and implementing new Free Trade Agreements (FTAs) with partners such as Australia and Zealand. Recently, the UK also joined as a member of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). Other large economies including Japan, China, and India have a significant number of FTAs while the number of FTAs involving the US is below the average of STI economies.
• Capital account liberalization: Japan, the UK, and the US are amongst economies with the highest level of capital account liberalization in 2023, measured by the Chinn-Ito index. These policies facilitate the movement of capital across borders. Countries that rank higher impose fewer restrictions on capital movements and foreign investments. India and China are at the opposite end of the spectrum in capital account liberalization. Both economies maintain tight controls on capital movements, which they believe safeguard their political and economic stability and manage foreign exchange risks.
• Investment freedom: The UK and the US provide high levels of investment freedom while China ranks lowest in our 2024 Index. The US, however, has slipped in its rankings compared to last year as rising geopolitical tensions shift its policy toward curtailment of inbound and outbound investments in sectors exposed to national security risk such as telecommunications, artificial intelligence, and biotechnology. China’s FDI regime is characterized by stringent regulations and controls in several key sectors vital to its national security such as telecommunications, finance, and technology, contributing to its low level of investment freedom.

Revisiting the benefits of an open trading system

An open trading system, free from unnecessary barriers and restrictions, is essential for fostering economic growth, technological advancement, and international cooperation. In recent years, however, the global trend has gravitated towards protectionism. Economies that once championed open trade are adopting measures to shield their domestic industries from foreign competition as evidenced by the increase in imposition of tariffs and non-tariff measures, heightened export and import restrictions, as well as the increase in use of investment restrictions across major trading economies. While this approach can be particularly appealing politically and during times of economic downturn or in response to perceived unfair trade practices by other nations, it is crucial to also recognize the long-term benefits of an open trading system in promoting greater economic efficiency and resilience.

Open trade facilitates economic growth by allowing countries to specialize in the production of goods and services where they have a comparative advantage, leading to more efficient use of resources and increased productivity. By removing trade barriers, countries can focus on what they do best and trade for whatever else they need, resulting in lower costs for consumers and businesses in the overall economy. Free trade encourages competition, which drives further innovation and improvement in product quality and services. Open trading systems enhance economic resilience by diversifying partner markets. This helps economies better withstand external shocks and fluctuations in external demand.

Protectionism, on the other hand, can lead to economic inefficiencies. In many cases, they have been documented as contributing to serious recessions, both in the nation where protectionism is first applied and then internationally as its effects spread. Tariffs and non-tariff measures increase the cost of imported goods, leading to higher prices for consumers and businesses. These measures inevitably result in retaliatory actions from trading partners, escalating trade tensions and reducing market access for domestic exporters.

Governments should consider the benefits of open trade policies as they weigh trade and investment barriers to foster sustainable economic growth. By embracing open trade practices and reducing barriers, countries ultimately lay the foundation for a more dynamic, efficient, and collaborative global economy.

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