Government Intervention and Regional Integration

Government Intervention and Regional Integration

Introduction

Protectionism entails designed national policies aimed at restricting free trade and protecting domestic industries from competition from foreign industries (Cavusgil et al., 2014). In other words, protectionism is a policy that provides a home industry with an unfair advantage versus international competition. It arises in the form of administrative rules, tariffs and non-tariff barriers such as quotas targeted at discouraging imports. Protectionism is the leading government intervention in international business. Government intervention may use investment barriers to target foreign direct investment flows, which restrict foreign firms from operations (Cavusgil et al., 2014). A tariff is a government tax imposed on imports, which effectively increases the cost of acquisition for the customer. A non-tariff trade barrier is a policy by the government, procedure or regulation that impedes trade through other means than explicit tariffs (Cavusgil et al., 2014).

The Role of the US Government Protectionism in Business Activities and Economic Growth

The US government has made interventions in international business. The Bush administration in the 2000s imposed tariffs on the importation of foreign steel into the country (Cavusgil et al., 2014). This form of government protectionism was targeted at giving the US steel industry enough time for restructuring and its own revival after years of decline from the steep competition from steel producers from foreign countries. Although the government action plan saved Jobs for the US in hundreds, the imposition of tariffs increased the cost of production for the firms such as Whirlpool and Ford, which uses steel. The high cost of material causes them to be less competitive, and their prospects of selling their products in world markets reduced. After causing significant harm, the steel tariffs were eventually removed. In May 2018, Mr. Trump announced a 10 percent tariff on aluminum (“What is a trade war, and why should I worry?”, 2019). His administration claims that the country was relying on its metals in other countries. Taxing foreign aluminum means US Companies will instead buy local aluminum.This will lead to boosting the aluminum industries, as more companies will want to buy their goods. On the same note, Mr. President Trump announced a 25 %tariff on all steel imports in May 2018(“What is a trade war, and why should I worry?”, 2019). This would mean that the prices of steel and aluminum would go up in the US, as there will less of these goods coming from foreign countries; the prices will be pushed up due to greater demand lifting the profits. Another form of protectionism that the US government is the role the US President Trump placing tariffs on the worth of goods on billions of dollars from around the world. So far, President Trump has imposed a 10 percent levy on 200 billion dollars of Chinese products. Besides, he has announced plans to impose tariffs a 25 percent tariff on 325 billion dollars of other Chinese goods (“What is a trade war, and why should I worry?”, 2019).

Different Viewpoints about Government Protectionism

Infant Industry Argument

When dealing with the infant industry, protectionism is a good idea. It provides ample time for a company to invest in its personnel and skills, production facilities and gain local consumer trust before opening up national markets to international competitors. In other words, in the act of shielding the industries by governments in their infants’ stages to allow them to have time to grow and strengthen themselves before entering into competition with the foreign industries(Tziamalis, 2017). In other words, the infant industry argues that the new industry needs to be protected until they have become robust and efficient to face competition in the world market. Conversely, the protectionist perspective has faced heavy criticism in infant industry situations. This is because as international trade expanded, there is a significant jump in prosperity and the huge capacity for technology sharing, specialization economies of scale and other merits because of global markets. Therefore, from a broader sense, protecting infant industries is beneficial to the nation that employs them but with the opportunity costs of value of global markets.

Unfair Competition Argument

This is one of the strong arguments for trade protectionism because of policy and enforcement ability differences. The unfair competition emerges, especially when the developing markets which have no infrastructure for monitoring business and enforcing penalties develop a policy. This is to offset the problem of dumping of goods in the developing countries due to international trade (“Arguments for and Against Protectionist Policy | Boundless Economics,” 2019). Another point for protectionism under unfair competition is intellectual property rights protection risks in the global market. This is where patents are protected from violation in an environment where domestic infrastructure cannot take legal action and increase the desire for innovation.

Jobs Argument

Proponents of protectionism argue that limiting imports will save or create more jobs in the domestic economy. The idea of these policymakers is that domestic buying of products is a driver to national production, leading to increased production, which in turn will result in a healthy local job market. There will be no competition between domestic industries and foreign producers and are therefore protected loss of market share due to cheap imports (“Arguments for and Against Protectionist Policy | Boundless Economics,” 2019). Balance of trade is a protectionist policy where exports in terms of production and jobs at home sustain the consumption of ongoing imports. The idea of reducing outsourcing in light of protectionist has ended up in government subsidies in terms of grants and tax breaks for domestic companies and creates jobs and increase employment rates.

Another argument for protectionism is due to the important industries that are undergoing temporary problems. For example, in the US, in the wake of the 2008 financial crisis, the Obama administration bailed out the Car industry (Tziamalis, 2017). Another argument which favours protectionism is based on the game theory logic. It follows that if countries are offering protection to their industries, and you are a competitor, then you, too, should provide protection to your industries (Tziamalis, 2017). This is to protect industries from being pushed out of the market due gaining of unfair market share by one industry.

The Current Effects of Protectionist Pressures on the Global Economy

Limited consumers’ choice and more pay for goods and services

An increase in protectionist policies will make consumers a limited choice of products and services may due to quotas on how much to import. As a result of these quotas, consumers will have limited choice on the quality and quantity and the product type that would otherwise be there without protectionism. Consumers may have to settle for poor quality products. Another problem is that the consumer will have to pay more for the limited goods and services available, which then will cause inflation to increase in the economy (Guarino, 2018). Global competition keeps the price of the products down and gives consumers the ability to spend. Still, protectionist makes consumer have limited choice where it settles for low quality or make no purchase at all.

A trade war among nations

This is a serious problem of protectionism policy as nations want to retaliate against the actions other countries did(Guarino, 2018). When protectionist policies are put into effect, the nations that were once selling goods and products to the other will impose countervailing quotas; tariffs, exchange rate controls and subsidies to deal with the action of another nation. A trade war will mean manufacturers and producers increase import costs as they must pay more from foreign markets for commodities, equipment and intermediate products.it will affect the GDP growth of a nation and ultimately drop in global trade.

Long-term inflation due to exchange rate controls

By having its currency value decrease, the domestic nation can sell its goods and products in a foreign market at lower prices. Any of those foreign products sold in its domestic market will lead to an increase in prices. Therefore, consumers will have to pay for higher prices for products, goods and commodities for them to survive. Nations may mean well to embrace protectionism to help their industries to be competitive abroad, but at home, its citizens pay higher prices (Guarino, 2018).

Conclusion

In conclusion, the current increase in protectionist policies needs careful consideration due to repercussions that are dangerous and can hurt both the global and domestic economy. The signing of trade deals by nations subsides the protectionist threats among trading partners.

                                                                    References

Arguments for and Against Protectionist Policy | Boundless Economics. (2019). Retrieved 5

March 2020, from https://courses.lumenlearning.com/boundless-economics/chapter/arguments-for-and-against-protectionist-policy/

Cavusgil, S. T., Knight, G., Riesenberger, J. R., Rammal, H. G., & Rose, E. L. (2014).

International business. Pearson Australia.

Guarino, A. (2018). The Economic Effects of Trade Protectionism | FocusEconomics. Retrieved

5 March 2020, from https://www.focus-economics.com/blog/effects-of-trade-protectionism-on-economy

Tziamalis, A. (2017). Explainer: what is protectionism and could it benefit the US economy?.

Retrieved 5 March 2020, from http://theconversation.com/explainer-what-is-protectionism-and-could-it-benefit-the-us-economy-73706

What is a trade war, and why should I worry?. (2019). Retrieved 5 March 2020, from https://www.bbc.com/news/world-43512098