Free Trade vs. Protectionism
Protectionism or rather trade protectionism refers to a national economic policy, which restricts international trade. This is usually done with the aim of protecting the local business as well as the business activities from the international or foreign competition. It can be defined as a form of tax imposed on the foreign imports (ItoÌ & Krueger, 1993). There are various methods employed in protectionism. These include quotas, import tariffs, subsidies or tax cuts, as well as direct state interventions. Alternatively, free trade refers to the opposite of the protectionism. Free trade refers to a form of international trade in which there are no restrictions and no imposition of constraints as well as taxes on the imports. Here, countries are allowed to participate freely in the international trade and everything controls itself including the market prices and market shares. There are many negative impacts of free trade, for example, reduction in employment opportunities. In the United States, there were about 5,000 workers losing their jobs due to its free trade with China (ItoÌ & Krueger, 1993). Protectionism is the best defensive measure in protecting the economy of a country from foreign imports. This earns the government some revenue and leads to the protection of the domestic industries, protects jobs in the country, and helps in solving the problem of dumping. Governments should adopt protectionism.
Trade protection or most famously known as protectionism is the attempt of deliberately limiting imports while promoting exports of a given country. This is achieved though use of various trade barriers, such as quotas, tariffs, among others (Nader, 2007). Despite most arguments favoring the free trade as well as promoting trade openness, it has caused adverse effects on the economy of most countries. Therefore, such countries, especially the developing countries, need to adopt protectionism in order to save the situation. To begin with, globalization has helped in promoting international trade. With free trade, the developed countries have risen to take better use of this advantage by exploiting the available market. This has seen them export their products, which are relatively cheap due to low costs of production, to the developing countries. This causes a threat to the infant industries in such countries (Nader, 2007). These refer to the industries that have just started to grow. They cannot compete favorably with the foreign companies. In order to sustain and keep such industries, there is need of applying protectionism. Shielding these industries against competition for a few years would help them to mature and be capable of competing. At this time, the trade restriction can now be lifted. Brazil used barriers to protect its reviving cotton industry against the competition from the United States. On the other hand, these countries are able to use their economic advantage to exploit further some of the non-renewable resources within the developing countries if the protection rules are abandoned. Such resources may include oil. This problem would affect most countries in the Middle East in case protection measures were not in place. However, these resources have been conserved though the use of production tariffs.
Free trade usually comes with increased competition. Apart from affecting the infant or rather the sunrise industries, competition also affects the sunset industries, or rather industries that are in the declining status, and might need some support in order to slow the rate of decline or eliminate the negative effects associated with the decline. Examples of such industries include the ship building industry, the textile industry, the automobile industry as well as the steel industry in the United Kingdom (Unveiling protectionism, 2008). In addition to these, there is a need of protecting the strategic industries against competition. These include industries such as the water, energy food, steel and armament industries. These industries are very crucial to the economy and welfare of the citizens. In case they fall due to competition, the economy of the country will fall drastically. Most countries are practicing protectionism in such industries. For example, the European Union Common Agricultural Policy was established with the aim of creating food security within the member countries. This was achieved by protecting the agricultural sector.
Barriers also help to dissuade prejudicial competition. This helps to eliminate the problem of dumping, a common problem that is associated with foreign firms. This refers to a situation where a foreign country would sell its products at below cost. This is done with the aim of eliminating competition in such a country and in establishing a monopoly position. In fact, the government of some foreign countries may subsidize some of their domestic industries. Due to this, the companies of such countries may charge lower prices in the international trade. This has been witnessed in many industries in China, especially in the construction industry as well as in the mobile phone technology (Nader, 2007). China has dominated most of the African markets in these industries. On the other hand, the unsubsidized industries in the domestic countries will be at an economic disadvantage. They will not be able to sustain the high levels of competition. Therefore, this results in their decline. Because of this, former employees in such industries becomes jobless, hence, the economy is affected drastically. In order to eliminate this, quotas, tariffs as well as other trade restrictions have to be implemented. In fact, this will also help the trade deficit of the domestic countries.
There have been many arguments against the practice of protectionism. In fact, most economists have encouraged governments to resist protectionism and pursue trade liberalization. Protectionism helps in reducing the competitiveness of the domestic firms within the export market (Lusztig, 2004). This is because the import restrictions raise domestic prices by the higher price of the intermediate inputs. This makes the exports to be more expensive, therefore, loses the market share in the international market. Due to this, the economic growth will be held back. In fact, statistics show that free trade helps to increase the average real incomes by 1.3 % in developing countries and by 0.7 % in the developed countries. Increasing the tariff revenue by $1 may result in a fall of approximately $2.16 in the world exports. Because of this, the world income will drop by $0.73 ((Lusztig, 2004); hence, protectionism affects the global economy as well as the overall production of a country negatively. In addition, free trade tends to promote interrelationships among different countries. This helps to promote togetherness and peace.
Even though the free trade has proved to have significant impacts on the growth of international or global growth, it also comes with its effects. It is mostly seen to favor the developed countries with high income. Therefore, protectionism should be encouraged in order to maintain equitable growth of the economy in all countries. Even if free trade has to be practiced, there are still some areas or industries that should be protected for the economic security reasons.
ItoÌ„, T., & Krueger, A. O. (1993). Trade and protectionism. Chicago: University of Chicago Press.
Lusztig, M. (2004). The limits of protectionism: building coalitions for free trade. Pittsburgh: University of Pittsburgh Press.
Nader, R. (2007). The Case against “free trade”: GATT, NAFTA, and the globalization of corporate power. San Francisco, CA: Earth Island Press ;.
Unveiling protectionism: regional responses to remaining barriers in the textiles and clothing trade. (2008). New York: United Nations ESCAP.