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Protectionist Strategies Strategic Reasons WhyEssay

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[. . .] An economic impact that results out of this is that the licenses are sold to the highest bidders in some countries in order for the government to realize profits. (Wessels, 2000)

While the tariff and quotas are apparent and can induce retaliatory measures that may prove harmful for the importing economy, other methods are less obvious and in some cases can be secretly carried out at the benefit of the home country.

These include:

Administrative barriers

These are the quality checks and the certifications that are needed by countries before a good can enter their borders. These can be imposed by holding that the certifications are required as a means to ensure that the goods being imported are of a good standard and can be used as a pretext for protecting consumer rights. In saying thus, the barriers cannot be proved legally incorrect, but in effect serve to restrict the amount of goods coming into the economy. The rationale is simple. Imports and exports are carried out by private businessmen more than the government, and where there is a lot of red tape and administrative barriers, these private enterprises will generally not enter, leaving the local industry of that country to develop on its own.

Anti-dumping laws

These are meant to protect local industries from an influx of foreign goods that can dumped in the countries at price lower than the cost of manufacturing it. But this in fact is a dicey policy as countries sometimes use it as a pretext to ban genuinely cheaper products. Again this measure cannot be easily proven legally and hence exists as a protectionist measure to help progress the infant industry of the country.

Direct subsidies

Government subsidies (in the form of lump-sum payments or cheap loans) are sometimes given to local firms that cannot compete well against imports. These subsidies are purported to "protect" local jobs, and to help local firms adjust to the world markets.

Export subsidies

These are in essence the opposite of tariffs where the local industry is given subsidies to encourage them to export and in order to make the local products more competitive in the market. Export subsidies can include direct rebates where the government gives the local industry funds, or it can be in the form of cheaper electricity and provision of cheaper infrastructure. These subsidies are harder to detect and therefore exist as a mechanism to boost exports.

Exchange Rate Manipulation

This has been done to death in China, where the government deliberately suppresses the value of their exchange rate in order to make their goods cheaper in the international arena. This also has a retrospective impact of making imports dearer as compared to how its available at a lower rate in the international arena serving hence as a protectionist policy.

International patent systems

These are copyrights and intellectual property rights that make it impossible for underdeveloped countries to make, and any infringement on any of these patent systems means that that particular country's goods might be banned.

Conclusion

There is a lot of controversy surrounding free trade where it is seen as curse that has been spelled out and has led to various financial crises all over the world. Before the Great Depression occurred, world economies were of the opinion that they needed to protect their local industries even if it was at the expense of other nations suffering. America followed the policy of restricting imports for Europe at the end of the First World War. It had surplus capital and wanted to develop its industrial centers. However, as Europe was heavily indebted to the U.S. In terms of aid in reconstruction and U.S. As one of the biggest markets at the time, was not allowing Europe to trade with them, the European countries were in deficits and could not buy the exports of the U.S., for which Europe was a big market. Therefore, as Europe was facing difficulty in returning the loans and U.S. was suffering from lower export revenue. This pattern continued in light of the fact that the policy makers of the time did not have the awareness of the tools available today. Therefore, the situation worsened and the Great Depression occurred.

It was after the Great Depression that the world leaders decided upon free trade as a solution to the world's problems. But the recent financial crisis in the world has led to the world discovering how a crisis in one country can lead the entire world to go into a recession, making it difficult to formulate any organized strategy to impact it.

Most proponents of Free Trade argue the case of India and China as economies which protected their nascent industries developed their local economies and are now in a position to compete with a world power such as the U.S.A. Such is the potential of a well-rounded consistent strategy that has made these emerging economies progress so rapidly. What remains to be seen is how they will be able to sustain this advantage in light of the increasingly competitive future and in light of the recessionary trends that are prevalent in the market. (Maunder & Maunder, 1979)

In light of these discussions we would like to maintain that as India and China were able to focus on their own economies first, and then opened up when they felt that they were in a position to, similar strategies should be allowed to be followed by other countries of the world. And therefore Protectionism should be allowed to some degree.

A good protectionism policy means consistency that strategy makers should adopt but the recent trends in the world are such and the recent foreign affairs status of the world has now been conceived in a manner that makes following protectionist policies difficult. While the argument remains where economists as well as policy makers reason the need for protectionist or free trade regimes, the fact is that globalization has rendered the world countries so interdependent on each other that even a minor change in policy can have world-wide effects, causing a series of events that could mean trouble for the entire world.

References

Bartlett, B. 1998, July. The Truth about Trade in History. Retrieved November 22, 2011, from CATO Institute Web Site: http://www.cato.org/pub_display.php?pub_id=10983

Gwartney, J.D., Stroup, R.L., Sobel, R.S., & MacPherson, D. 2008 . Economics: Private and Public Choice. Mason: Cengage Learning.

Kaempfer, W., Tower, E., & Willett, T. 2002. Trade Protectionism. Encyclopedia of Public Choice .

Lipsey, R.G., & Chrystal, K.A. 2007. Economics. Oxford: Oxford University Press.

Lighthizer, R.E. 2008. The venerable history of protectionism. New York Times .

Maunder, P.A., & Maunder, W.P. 1979. Government Intervention in the Developed Economy . London: Redwood Burn.

Moffatt, M. n.d. Price Elasticity of Demand. [Online] Available from: < http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm> (22 November 2011)

Riley, G. 2006. AS Markets & Market Systems. [Online] Available from: < http://tutor2u.net/economics/revision-notes/as-markets-price-elasticity-of-demand.html> (22 November 2011)

Wessels, W. (2000). Economics. New York: Barron's. [END OF PREVIEW]

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