Is free trade the best economic policy that countries can adopt, or is protectionism ever justified? Discuss

Is free trade the best economic policy that countries can adopt, or is protectionism ever justified? Discuss

Introduction

The ideal perception is that all the goods and services should be moved on easy terms from one country to another country (Amundson, 2017). Furthermore, this statement can elaborate on the fact that the term “Free Trade” is based on the sustainability of both consumers and producers on reasonable terms. (Zulyadi et al., 2020, pp.232-234).

On the other hand, the term which is called “Protectionism” depicts a different picture on the world of the economic landscape, which underscores the importance of restricting trade (Akbulut Merchant et al., 2017). This term clearly stated that free trade could harm the local industry, which negatively affects the business of indigenous people (Lake, D.A., 2018). This kind of uncertainty brings economic crises among the people, which adversely affects economic development at a broader level. A large body of literature shows that specific restrictions are fine, but strict control over free trade can also harm international trade. For instance, “limits on agricultural imports may be good for

British farmers, but they also increase food prices” (Masch, 2017, pp.49-63).

Key Arguments

To further explain the nature of free trade and protectionism in detail, the following arguments will help to set out an overview to critically analyze the crux of these terms.

Free Trade

Free trade has many positive aspects, which can escalate the economic development of the country; some of them are described to give support to the argument.

• Free trade is the critical element to boost the international economy by integrating the world in terms of particular expertise and natural recourses in order to facilitate the whole world through international multiple exports and imports (Sako, M., 2019). Moreover, it is also responsible for enhancing the level of productivity in the long term improved wages (Owen, 2017). Hence, it is proved by several types of research that free trade is the catalyst of change through rising the global trade in recent years (Ekins, 2017,340-367)
• Free trade has multiple dimensions to judge; on; on one side, it decreases the prices by curtailing additional taxes and excluding tariffs (Rodrik 2018, 73-90). However, it also increases the competition among different countries, which provides advantages to the consumers as they can enjoy a vast range of products at relatively low prices. For example, Kenya is the sole producer of a particular type of tea, which is not accessible without international trade (Pelagidis, T., 2018, pp.121-128)
• Free trade is also taken out of the red tape, which curbs the intensity of trade cost. For instance, if organizations can trade in several countries with one set of laws, the total compliance cost will be reduced (Pawar., 2017). Hence, this approach will also curb the intensity of inflation through low-priced goods and services (Eventeet, 2017)
• On the flip side, protectionism trying to keep their own economy safe from international trade, which can be responsible for the caustic trade wars (Osabuohien, et al. 2018). The negative safeguard results rise in inflation in terms of over-priced products, along with uncertainty (Findlay, 2017).
• However, the big picture of business in this regard is different as Protectionist’s agenda is to serve big business (Boudreaux., 2017)

Protectionism

In the following paragraphs, there are some other facts which counter the above arguments on free trade as it also has some dark sides.

• Free trade brings international industrial boom; however it adversely affects the local market or local industries. For instance, since 1950 U.K.’s shipbuilding industry faced a huge crisis due to international trade, which is the byproduct of free trade (Qian ., 2019, pp.20-30)
• It can also save the job to save the economy from the harms of recession or at least make the process of laying off the people (Haggart, B. et al. 2017)
• The aspect of protectionism is it is a big support start new industries, in the initial phase, companies face some difficulties in terms of start-up costs and lack of government support, but later on, these issues will be resolved when they get into the competitive market (Maher, 2019)
• The most important positive aspect of protectionism is to save the indigenous resources, which includes armaments, food, water, energy, and steel. For instance, the preservation of these resources will help to overcome the crises of world trade, such as “food and water security” (Meyer. 2017).
• Some researchers have shown that free trade can lessen the quality standards in terms of buying cheap products on nominal prices, instead of quality products at a higher level (Moon, 2018). Some other factors that are reported in recent researches are the higher the rate of competition can affect the environment as companies overlook the quality standards due maintain their position (Kikuchi, 2018). Hence, these factors will reduce the importance of quality in many dimensions (Duckenfield., 2017).

Generic Arguments along with Examples from International Platform

One of the key concerns of the World Trade Organization (WTO) is the connection among countries for sustainable growth and development (Bollen, Y. et al., 2016). Therefore, the world trade system (WTS) supported the fact that free trade is the ultimate assurance of better trade policies in relation to regional economic cooperation (McKibben, et al. 2020). Nonetheless, the latest researches shed light on some different facts, the advocates of free trade underscored the importance of free trade and urge to introduce these kind policies (Corbin, 2018). The rise in demand for interconnected policies is explicitly evident in several regional trade agreements (RTAs), which increased in recent decades (Odijie, 2019). These police focus on increasing the interconnectedness among countries for the rapid growth of international growth and development (Nzelibe, 2016). The flip side is protectionists commended these arguments and declared that free trade is accountable for poverty and inflation, which is rooted in tariffs free products, which cause a decline in local business (–). Thus, the primary agenda of these protectionists is to promote economic welfare by advocating national macroeconomic goals (–). The goals are set to regulate the policies to avoid employment. For instance, “countries implemented 14 Beggar-Thy-Poor-Neighbor: Crisis-Era Protectionism and Developing Countries 1,593 protectionist actions in the three years to November 2011 (–). Then an example is a complaint by the European Union (E.U.) over Argentina’s import restrictions and the “controversial expropriation of a Spanish-owned oil company.” Another example is the China-US dispute regarding 22 countervailing measures that were applied to Chinese imports, which are argued to affect about US$7.3 billion of Chinese exports to the U.S.”(–).

The above discussion in free trade or protectionism has both merits and demerits; however it depends on the internal economic policies of the countries (-). This is an old argument, but by the passage of time, it is wrapped into new policies and discourses. This argument is deep-rooted in the era of economic depression, faced by the western world in 1930 (–). Furthermore, the continuation of this argument has been more strengthened after the 2008 economic crisis, which brings a new way to see these policies in terms of macro and microeconomics. Consequently, economists, researchers, and policymakers advised to form new policies and modify the exciting ones to get rid of these crises through various regional economic communities (RECs) (–).

A detailed Look from the Contemporary literature

The Genera of Trade and its Implications

The general perception of free trade is seen as the dearth of regulatory system on international trade, which ties countries through economic dealings (–). However, this system is required for a secure connection between countries in terms of import and export. Moreover, many researchers have seen growth and development as a byproduct of trade as it the primary construct for the sustainable development of any nation (–). They also elaborated this term and professed it as the agent as the provider of necessities for economic development, such as raise the number of employees, distribution of income, and curtail the intensity of poverty (–). In the same way, market-friendly policies are critical contracts for escalate economic sustainability concerning productivity and rapid growth (–). According to (–), flexible free trade policies can increase the competition through an increasing level of productivity (–).

The African Context and the Impact of Free Trade Policies

The above literature underscored the effect of healthy trade policies in terms of free trade. However, there is also a contrasting fact emerged from the context of Africa. It has been evident that Africa made its free trade policies more flexible to maximize its economic development, escalating trade growth, and promote trade liberalization. However, the results of the implementation of these policies are not satisfactory as there there is no remarkable change in the economic conditions of this region (–).

The Genera of Protectionism and its Effects on the Economic Growth and Development

On the flip side, literature has acknowledged the importance of free trade, but still, many countries have concerns on the issue of protectionism as they want to keep a balance between free trade and protectionism (–). The general description of protectionism is the sound regulatory system, which has some specific policies to reduce the level of import and exports through free trade (–). Additionally, it is also overseeing the market inefficiencies and gives reasonable solutions to alleviate them (–). Research by (–), stated “the implication is that these market inefficiencies and loss of faith in free trade will culminate in the persistence of protectionism’.

Another debate emerging from this thread is the discussion is the intensity of productivity or non-productivity of protectionism on developed and under-developed countries, the findings from the vast contemporary literature elucidate that it has more adverse effects on developing countries, instead of industrialized countries. According to (–), “The United Nations has claimed that E.U. protectionism deprived developing countries of nearly US$700 billion in export income a year.”

The Dispute between Russia and the US

Russian and the U.S. are indulged in a number of disputes, which includes trade deficits, particularly in the context of developing countries (–).  These disputes includes trade restrictions and violation of human rights, which become a popular discussion in many international forums (–).

Moreover, U.S. congress condemns the policies regarding Russian trade agreements as they are declared guilty by them in relation to human rights violations. Likewise, the case of “dolphin-safe,” which was ruled by WTO, declared that the U.S.’s approach violated the terms and conditions of Technical Barriers to Trade (TBT) agreement by WTO (–). The dispute is U.S. banned Mexican fishing “purse-seine,” which is an utter injustice with Mexican fisheries. The result of this violation can lead to an increase in a market share of U.S. based dolphin-safe and decline in the shares of Mexican fish farmers.

The Final Thought- the Productivity of Free trade and its Harms on Local Market

The above discussion on the productivity of free trade and the role of perfectionism has created a number of ambiguities and raises several questions. The Theoretical analysis revealed that it has both arguments which are based on the pros and cons of free trade. However, literature also revealed that superpowers make free trade as a burden on weak economies. The literature review and analysis show that the crux of “protectionism” is outdated in several nations. However, it has a strong standing due to the poverty and employment crisis in many developing countries. On the flip side, free trade is seen more productive, and a large number of countries adopted new and modified policies in order to enter international trade. However, the case of Africa told a different story as free trade does not improve the level of economic growth in that region. Moreover, cases like Russian violation of human rights and safe-dolphin dispute raise many questions on the credibility of free trade in terms of hegemonic powers of big economies.

References

Krugman P.,1987, “Is Free Trade Passé?”, The Journal of Economic Perspectives, Vol. 1, No. 2 (Autumn, 1987), pages 131-144.