Role of Government Protectionism in Business Activities and Economic Growth

Role of Government Protectionism in Business Activities and Economic Growth

The global economy (and global trade) will impact countries devastatingly. There are numerous pressures placed on countries that may disrupt the economy of a nation, particularly in times of a slowdown or recession. A country can also feel this strain irrespective of the global economy, for example, in a cycle of consolidation or catch-up that takes time for international competitiveness to be achieved. The most common principle is that nations use a concept known as trade protectionism to safeguard themselves against the harmful effects of global economic pressure. The discussion herein explores the Chinese government protectionism in business activities and economic growth while giving different viewing about the government’s protectionism.

Role of Government Protectionism in Business Activities and Economic Growth

When you analyze the commercial cases involving China at the World Trade Organization (WTO), China is the nation most severely affected by trade protectionism. In keeping with the WTO, China confronted seventy-three anti-dumping cases and ten compensation cases by a world trade body in 2008, accounting respectively for 35% and 71% of the overall worldwide. China faced 58 commercial remediation cases involving 8 billion USD worth of goods during the first half of this year. Some measures for trade protection are aimed solely at China. For example, the 2009 United States Omnibus Appropriation Act, which passed on March 10, 2009, by the United States Senate, expressly limits imports from China of poultry products. In its June review of protections affecting some passenger vehicles and light truck tires, the United States International Trade Commission has meanwhile ruled against China levying tariffs of as many as 55%.

Although the value of the goods involved in these cases can be restricted by the total size of Chinese trade, its expanding effect on China’s economy, economic recovery and development can far surpass the EUR 8 billion in danger and damage. Beginning with the performance of Chinese trade since the financial crisis – After entering the WTO by the end of 2001, China has been enjoying rapidly increasing trade. Still, since the crisis, its trade output has decreased dramatically. Prior to 2008, the annual growth in imports and exports was over 20%. Between 2002 and 2008, China imported 4.8 trillion USD accumulated from the world at an average yearly rate of growth of 25.1%, representing 9% of the global total import value. China’s trade market has been severely affected by the global economic downturn since 2008.

While China’s export and import growth in the first decade of 2008 were relatively stable–21.9% and 27.6%, respectively, — November saw a 2.2% and 17.9% contraction, respectively. Since then, the economy in China has spiraled downward. Exports contracted by 21.8% and imports were 25.4% during the first half of 2009. China has experienced rapid, almost all by two digits, decreases in the trade with its top 10 importers and exporters. Consequently, exports from China are closely related to their imports. If exports decrease, imports decrease. In the first half of 2009, Chinese imports decreased, not because of the protectionism of China but because of the peculiar trade characteristics of China. China’s trade in the manufacturing of China accounts for half of its exports, in reality. More than 30% of Chinese imports, in other words, imports for export production, are used. As a consequence, China’s imports from the rest of the world will decrease even if exports decrease as a result of trading restrictions in other countries.

Trade-protectionism directed towards China, in other words, would also hurt imports from China— although not necessarily from countries which are limited by the trade. The establishment of trade barriers for Chinese imports will not do any good to the world, especially as the exports to countries seeking to recover from the recession have become so important. Then again, China has tried to shift its growth from export-led to consumer-driven for several years now. Yet China is a nation too big and densely populated to happen at once or at once. Foreign demand, therefore, continues to be a significant source of economic development. China’s international trade sector employs 80 million people directly, 60% of whom are rural migrant workers. Taking an example of the United States trade complaint about Chinese vehicle tires, US protectionist measures would impact 100,000 Chinese workers directly. Including related jobs in industry downstream and upstream, the number of employees affected could be up to one million. Mass layoffs in labor-intensive industries in China would confound efforts to move to a consumption-led economic model. Still, it would be wrong also for those regions of the world which want their trade accounts to be rebalanced.

Different Viewpoints about Government Protectionism

While policymakers and economists generally take a positive view of free trade, China’s protectionism is not necessarily diminished. The pros and cons of protectionism are both present, depending on the context, and may at some stage make this principle seem conducive to specific economic sectors. China’s protectionism is mainly due to the argument by the infant industry. This argument submits that new domestic industries need support and help in order for them to grow, or else, mature foreign products will saturate the domestic market before they can even evolve (XXX). The size and ability of other markets lead well-established international companies to take advantage of economies of scale, improved capabilities, and resources and are seen as only equal for a national market that is regulated in order to allow them to achieve a more advanced level. Nevertheless, the other side of the discourse is that although China is defensive in order to protect the domestic market and its workers, the impact on those aspects is negative.

The comparative advantage theory implies that free trade benefits are higher than losses because countries are specialized in industries in which they have a competitive profit. Moreover, free trade is said to increase international competition among companies, leading to an increase in living standards. Therefore, one can argue that it is highly questionable and inefficient if it is thinkable for various industries in a nation to be safeguarded by trade protectionism ever to reach a genuinely competitive level (XXX). China is seeking to become a proponent of free trade and open markets in this era of protectionism. Chinese President Xi Jinping promoted greater integration among the world economies at the annual conference of the World Economic Forum in Davos (XXX). Trusting his words, then it is appropriate to ask: does China open its markets to foreign competition, or is it fanatical of multilateralism to place China in favor of the United States?

China’s economy has been selectively liberalized–in an incomplete manner–only to open up sectors to foreign investors who were deemed critical to economic growth and development. These sectors mainly included manufacturing units that are intensive in labor and other industries that require upgraded technology and infrastructure. Bureaucratic bureaucracy and complicated processes was also an obstacle to China’s investment in foreign countries. But the story continued until the mid-1990s. When China moved to liberalization, its trade and investment system shifted. Chinese people generally view free trade and globalization differently — welcoming and opening to countries that could benefit from it. Everything’s revealed in history. Chinese President Xi Jinping’s recent appearance at Davos seems to be a pure rhetorical strategy for free multilateralism and trade, despite China’s extensive trade and investment constraints in the past. China is ranked as 44th out of 56 nations, according to the Information Technology and Innovation Foundation index, which assesses the impact of their economic and trade policies on the system of global innovation.

This suggests that China is acting like a typical’ market innovation’ with policies such as forced trading and investment localization, export subsidies, or failure to protect intellectual property rights. Such policies only favor China and harm the global system of innovation. In China, it cannot be denied that, given a restricted political environment, the selective model of liberalization has worked for the growth of the country. China has recorded an average annual growth rate of over 9% over the period 1989-2016 (XXX). So long, so China derives enough benefits from a decentralized approach to liberalization, it would not be prepared to move towards a more open, equitable, liberal, and regulatory trade system. Anything in China’s trade system is unlikely to change.

Effects of Current Increase of Protectionist Pressures on the Global Economy

The question of trade security has been revived as the global financial crisis looked at the world economy in September 2008. It has affected many parts of the world and is rightly referred to as a worldwide crisis. Although many of the developing countries avoided real recessions in the sense of having negative inflation, a GDP decrease of about six percentage points in the developing world was indeed a concern of their pre-crisis levels. It has become an issue of media attention and the increase in protectionist pressures around the world. As a reaction to the crisis, such pressure might trigger high protection. After the commitment made to the leadership of G20 by the G20 on November 15, 2008, that they will refrain the raising of new obstacles to investment or to trade in goods and services, impose new export restrictions or enforce measures of the WTO to raise exports.’

Conclusion

To wrap up, this discussion explored the Chinese government protectionism in business activities and economic growth while giving different viewing about the government’s protectionism. Indeed, following the analysis of the commercial cases involving China at the WTO, China is the state most sternly impacted by trade protectionism. The country confronted seventy-three anti-dumping cases and ten compensation cases by a world trade body in 2008. The most common principle is that China uses trade protectionism to safeguard itself against the harmful effects of global economic pressures.