Select a country of your choice and explain the role of government protectionism in business activities and economic growth. What are the different viewpoints about the government protectionism? Include a discussion on the current increase of protectionist pressures in the global economy.
Your well-written paper should meet the following requirements:
5-6 pages in length
Support your analysis by referencing and citing at least three scholarly sources in addition to embedding course material concepts and principles.
Use APA style guidelines, citing references as appropriate.
The global economy is becoming competitive by each passing day which is making the growth for countries more difficult than ever. Governments are making policies to accelerate the economic growth, one of the strategies which government use for the country’s economic interest is protectionism on which different economist have different arguments as these policies restrict the imports and exports with other countries. This paper will analyze the different aspects of protectionism which is used to conclude the US economic environment. US is one of the biggest economies in the world and recent competitiveness forcing the US government to force protectionism to protect the local interest of the country.
Trump administration is forcing the policies which have conflicting by economist and suggests that the maximum economic benefits can be gained when the global market is trading freely this states that the free trade ill help the economies to generate more revenues. Some economists have defended the position by scientific terms, but there is the contradictory view as the countries are still adopting these protectionist policies. This paper will also analyze the reasons countries have adopted protectionism policies. These policies have the expected and unexpected effects on the economy and further on the social and political effects. These effects will take place if the biggest economy of the world will take the protectionist policy (Annunziata, 2018).
Wonders of Free Trade
When the trade has no barriers it grows the size of the market and so does the size of the economy. It helps to achieve the economies of scale does lowering the production costs as the trade becomes international and the demand is ever growing. Free trade grows the all over economic activity which increases the economic growth. Open trade also increase the competition and break the monopoly of the companies on domestic and international level. It also increases in the variety of the product, so consumers have more options suiting well to their needs while decreasing the prices. Free trade also enable the countries to acquire different technologies from the other countries which further increase the development and growth can be seen by these technologies in fewer time and the stages of the development can be crossed early by these technology exchanges (Litan, 1987).
There is a lot of support by the scholars on the open trade, and all the factors can not be discussed thoroughly here. David Ricardo developed the theory of the comparative advantage, in which he suggested that if the two economies of nations have the comparative advantage to make a product which in terms of relatively low costs than both nations could benefit from the economy which is making it relatively cheaper. So, the countries make goods which they have a comparative advantage from other and make products which give them comparative advantage over others. Further, describing this policy comparing it with protectionism will clear and give further insight (Litan, 1987).
Protectionism has costs which are due to the resources taken form the other industries through which the output of the industry falls. These protectionism policies will lower the demand for the product due to the higher price and lower competition, further making it hard for the consumers to buy good with low variety while reducing there purchasing power. The production of the competitive country will also fall due to the reduction in demand of their product. It also reduces the investments in the country which are making and implementing the protectionism policies due to the uncertainty and lower demand and production of the industry will directly hit the economic growth (Allen, 2018).
A number of studies suggested that the trade restrictions will not create the jobs in longer run and undermines the country ability for growth. If the country adopts protectionist policies, the other countries will also impose the restrictions of the protectionist country products which will undermine the reveneue of the protectionist country if the reducing imports policy is taken. It has also seen in the studies that the costs of the protecting local jobs is higher than the costs of retraining the workers and relocating them for the comparative adavantage industries. It also increases the costs and losses due to the re-structuring of the economy.
Types of Protectionism #
Protectionism has a broad definition which encompasses the number of policies and regulations to restrict the trade and boost domestic manufacturing of the products and economic growth. It impose taxes on the new imports; these policies implemented to restrict the imports and governments use different policies to implement these regulations (Keupper, 2019).
- Import Tarriffs: Taxing the imports through import tarrif increase the costs of imported goods and make it expensive for the local consumers
- Import Qoutas are used to restrict the imports of the specific goods and impose taxes to lpower the competition domestically
- Domestic subsidies are also used by the countries tp grow the local production by providing cheaper or free of cost loans
- Exchange rates intervention is used to lower the currency valuation to raise the cost of imports and lower the costs of the exports for competitiveness
- Administrative Barriers are used to impose regulations and making it difficult for imported goods to sell on the local market
These are used by governments to reduce the imports and give the advantage for to local manufactuerers.
Roots of Protectionism in local economy
Countries uses protectionism to protect the local industry and secure the jobs for the people in the country as in free trade there are a number of products which is imported by the other countries which can create the competitiveness in the market and declines occur in the local job market. It is adopted to secure the manufacturing of the local goods and industry and forming the balance between the jobs needed and jobs created so that the livelihood of the people of the country can be secured and the economic balance can be created. These local markets can sometimes suffer from these imblances due to the lower cost of imported goods due to the comparative advantages other countries have for the production of the specific goods (Bhagwati, 2018).
Sometimes these restrictions are imposed on the country to restrict the buying of the foreign products which can compromise the local manufacturing market and also sometimes the defence and security of the country. As the country buying the defense equipment can face challenges operating it in the war situation and could also face the shortage in crucial times (Litan, 1987).
Countries which are technologically advanced sometimes use the data of the people from other countries which can be used for the illegal purposes and the nation’s security can be compromised due to theses measures, and that’s why governments imposes taxes and ban the purchasing of the equipment from the people.
Trade Wars forcing protectionist Policies globally
Trade wars between countries also forces the governments to impose protection policies to save the local interest. The recent war which is highlighted in the news is the USA, China trade war in which the US is imposing restrictions on the import of the Chinese goods which are cheaper and increase the competition within the US market. Trump administration are keenly imposing these policies to protect the local interest and this is under criticism by the number of economists, but still, the government is on to it for the reason of the protection of the local market (Annunziata, 2018).
These trade wars are not good for the economy of the country as these two are one of the biggest economies in the world and these policies impact the global economy and restrict the policy of free trade which is backed by the large number of economists for the economic growth globally. On the other hand Chinese government also taking measure to expoloit the opportunity and imposing the taxes and restricting the imports from the US which is directly affecting the US economy which the paper discussed above the import restrictions these wars are cozying both countries and the prices of the consumer goods are on the rise.
The have discussed the different aspects of the protectionism and how government use policies to protect the local market from the other countries but it has number of back draws which needs consideration by the governments as the economist believes in the two side effect of the decision and these policies are cosying both countries in terms of potential revenue and economic growth. Free trade is the best for the global economic environment and countries should make decsions keeping in mind the costs of the protectionism as it does not give benefit in the long term and cost the country relations with other countries and restrict the economic growth.
Allen, K. (2018, Nov 28). Protectionism and trade disputes threaten world growth, says OECD. Retrieved from theguardian.com: https://www.theguardian.com/business/2016/nov/28/protectionism-trade-wars-world-growth-oecd-donald-trump
Annunziata, M. (2018, mRACH 22). Tech Vs Tariffs: How Companies Adapt To A Protectionist World. Retrieved from forbes.com: https://www.forbes.com/sites/marcoannunziata/2018/03/22/tech-vs-tariffs-how-companies-adapt-to-a-protectionist-world/#35d7b5a64729
Bhagwati, J. (2018). Protectionism – the case against. Retrieved from oecd.org: http://www.oecd.org/trade/protectionism-thecaseagainst.htm
Keupper, J. (2019, Jan 31). What Is Protectionism? Retrieved from thebalance.com: https://www.thebalance.com/what-is-protectionism-1978989
Litan, R. Z. (1987). Why Protectionism Doesn’t Pay. Retrieved from hbr.org: https://hbr.org/1987/05/why-protectionism-doesnt-pay