Trade protectionism has caused various impacts on the International trade. The current world trade is characterized by declining trade levels and several countries abandoning mega-regional trade agreements. In fact, the government of US early this year ended the Trans-Pacific Partnership (TPP) and trade deals on the Trans-Atlantic Trade and Investment Partnership (TTIP). These and many others trade challenges are brought about by threats of trade protectionism against free trade, globalization and economic integration (Bancroft, 2009).
Ideally, trade protectionism is an economic strategy that involves restraining trade between countries by using firm government regulations, preventive quotas, and affecting tariffs on imported goods. The primary of protectionism is to protect local producers and businesses from manipulation of foreign competitors. Free trade or economic integration, on the other hand, means unification of trading and economic policies of different nations by eliminating tariff and non-tariff barriers (Bancroft, 2009). The essay will analyze trade issues in various countries worldwide to understand advantages and disadvantages of protectionism versus free trade.
Trade liberalization is the ultimate aim of various players in the trade sector worldwide. To achieve this, nations should apply bicycle theory to ensure smooth trade across regions globally. Bicycle theory is a mechanism that argues that countries must progressively remove trade barriers to avoid backsliding in their trade efforts. Additionally, it calls for states to increase trade agreements to curb protectionism that is likely to bloom in case of trade disagreements (Lester, 2016).
The argument by Gray (2017) that European policymakers should defend the global trading system against protectionism that is associated with Trumps administration is right. Truthfully, protectionism can result in enormous negative impacts to consumers and producers operating at export sectors as well as workers mainly operating in nations that have implemented protectionist policies. In turn, the economic growth and economic welfare of those countries will be damaged. Free trade would provide positive effects on the economy due to minimization of trade barriers that allows smooth demand and supply of products across different trading nations.
Although the new government of US had promised harsh laws against their major trading partners (Mexico and China), little efforts have been achieved due to growing need for economic integration all over the world. Currently, negotiation between and other countries concerning free trade agreement is underway. This confirms increasing demand for economic openness rather than protectionism worldwide. The significant barrier to spread of protectionist policies among developed countries like the US is openness expressed by trading countries. Moreover, the minimal level of trade tariffs that is less than 3% across European and American markets makes it impossible to call for advanced barriers (Lester, 2016).
Trade skepticism is another crucial theory that has generated a rise of isolationism and nationalism in the United States. This arises due to the perception that the US is superior to other countries thus they should not support free trade. This psychological worldview can affect trade deals because is not based on economic considerations (Kabir & Salim, 2014). In fact, the new US president Donald Trump fueled the anti-foreign sentiment which is preventing outsourcing in the country. Despite being widely pushed for; the move has experienced massive setback from individuals who believe in subcontracting as a way of promoting interaction between locals and foreign people or firms.
In todays world, it has become an uphill task for capitalists and union of workers to lobby for their protection. This is due to the dominance of multinational firms in a foreign sector that minimizes alignment of the two factions. For instance, many Chinese and Mexican companies have made enormous investments in US soil thus any protectionism policy is likely to hurt them. In long-run, the economic and diplomatic relations between the countries will deteriorate resulting in declining of trade levels (Margalit, 2012). Therefore, the nation cannot risk hurting their economy just because of trying to protect the local investors.
The North American Free Trade Agreement (NAFTA) has been playing a substantial role in creating high-paying jobs in both US and Mexico. This economic integration results to the expansion of markets that encourages the creation of more employment opportunities for people across the two nations. Moreover, it supports more investment into the country and subsequent diffusion of new technology. Additionally, the trade partnership will boost low wage countries by leveling their production with other regional partners (Margalit, 2012).
Other than employment opportunities, free trade encourages political cooperation among different countries. For instance, NAFTA which is a bilateral trade agreement between the US and Canada has improved the political relationship between the two nations. A nation can gain a more considerable influence in the world than what an individual country would have achieved. For instance, Canada has grown to be a big player in trade due to the impact of NAFTA and is capable of handling socio-economic challenges arising from globalization. Lastly, free trade helps in managing political instability and conflicts that may affect regional trade (Fouda, 2012).
Trade creation is another excellent benefit of economic integration. Member countries can acquire goods and services at low cost because of less or no tariffs on the products. Also, the countries can have a wide selection of goods and services that may have been unavailable in their respective nations. For example, the association of South East Asian Nations (ASEAN) regional blog has benefitted Malaysia, Philippines, Indonesia, Thailand, and Singapore regarding the circulation of cheap products in the markets (Fouda, 2012). Nonetheless, the partnership encourages boosts trade between the countries thus resulting in huge savings that can be used to buy more goods and services.
Furthermore, international economic integration has significant positive impacts on the cultural and social aspects of member states. Integration results in migration of labor, increase in multinationals and Foreign Direct Investment (FDI) thus leading to shifting domestic value alignment and exposure of foreign influences. The enormous power American and European countries have on the trade deals have led to growing American and Western cultural and economic dominance all over the world. Some nations can adopt a new positive culture from the member states thus proving that free trade can be beneficial (Kabir & Salim, 2014).
However, economic integration in some instances can affect a country negatively hence forcing them to implement protectionism. Firstly, the member countries face trade diversion. In this case, a state has to trade their commodities with other products of member countries even though the goods and services are costly. Despite the inefficiency in cost, a nation will not trade with non-member countries with somewhat low-cost products. This causes high economic countries to manipulate the less commercial counterparts because of the economy of scale. For example, a low-income country like Jamaica may be forced to purchase products with same costs as a high-income country such as US (Abida, 2013). This results in unfair treatment in the trade deals.
Secondly, trade protectionism restricts imports hence helping a country to develop new industries that could have been ruined by imported products. For instance, US has been importing many electronic products from Asian markets because of cheaper cost. However, the electric companies have been adversely hit by the move causing some to close business. Thus, the move by Donald Trump to ban foreign goods or increase their tax will boost local industries and possibly revive those that were at risk of extinction.
Thirdly, trade protectionism is likely to benefit the locals due to the possible creation of jobs in local industries. There will be rising number of domestic enterprises located in rural areas where cheap local raw materials are readily available. Local producers manage to get a ready market for their products thus increase their production to meet the high demand of the raw materials (Abida, 2013). Subsequently, increase in production increase countrys outputs thus enhancing economic growth. Furthermore, the nations wealth rises causing the balance of trade.
Moreover, free trade may affect national sovereignty. International trade agreements and organizations such as WTO requires member states to give up some degree of control of vital policies that include fiscal and monetary policies. The more integrated the agreement is, the higher level of controls a country will give up. For great nations like the US, giving up crucial policies is likely to degrade their sovereignty and influence in trade sector globally (Abida, 2013). This factor led Trump to push for American first slogan that has become a massive trade to global trade and has undermined WTOs efforts significantly.
Following the reasons for and against protectionism and economic integration, it is clear that global trading system should be defended. I agree with the authors statement mainly because protectionism has huge adverse effects on not only a specific country but to the world trade at large. Some of its negative impacts discussed include being a barrier to the free circulation of products and other socio-economic impacts globally. The US currently under Trump leadership is pushing for protectionism, but it has received a hostile reaction from both the locals and foreigners thus threatening foreign relations with other countries like Mexico.
I further agree that protectionism is unlikely to prevail due to increase in economic cooperation witnessed in todays global markets. Many European multinationals are increasingly trading in Asian markets thus growing their economic growth. This is unlikely to happen in a country that pushes for protectionism policies for their benefits. Significant deals such as new economic co-operation between Serbia and Republika Srpska is becoming common thus protectionism is likely to survive in this modern world.
Abida, M. (2013). The Regional Integration Agreements: A New Face of Protectionism. International Journal of Economics and Finance, 5(3), 183.
Bancroft, I. (2009). Economic (re)integration versus protectionism. TransConflict. Retrieved 19 October 2017, from http://www.transconflict.com/2009/06/economic-reintegration-versus-protectionism/
Fouda, R. A. N. (2012). Protectionism & Free Trade: A Country's Glory or Doom? International Journal of Trade, Economics, and Finance, 3(5), 351.
Kabir, S., & Salim, R. (2014). Regional Economic Integration in ASEAN: How Far Will It Go? Southeast Asian Economies, 31(2), 313. http://dx.doi.org/10.1355/ae31-2j
Lester, S. (2016). Bad Trade Talk. The International Economy Fall, 2(1), 66-75.
Margalit, Y. (2012). Lost in globalization: International economic integration and the sources of popular discontent. International Studies Quarterly, 56(3), 484-500.
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