For or Against Protectionism?
In my opinion, an economy that is for protectionism is better off than an economy that is for free trade. There are many reasons that a country should be for protectionism. Protectionism mainly allows for an economy to safeguard their domestic employment, through protectionism policies that reduce the entry of imports. The lower the imports of an economy, the higher the aggregate demand will be and therefore, the higher the level of domestic output and employment. Another reason an economy should be for protectionism is to prevent labor exploitation in developing economies. An example of a developing country that exploits labor is Thailand. Thailand allows Burmese to work in their country under the Thai people. Protectionism prevents dumping, which occurs when an economy sells a good or service to overseas markets for a price that is below the cost of production. Local people are forced to buy the same goods and services at a higher price than those economies buying it overseas. Furthermore, it is important for countries to protect infant industries within their economies. If an economy has only recently started to develop and grow, it may enter the international market with increasing comparative advantages. In this case, the country would need protection from the power of other economies that are already established. Lastly, protectionism in the form of a tariff allows for a reduction in demand of imports as well as an increase in government revenue. If the demand for imports is price inelastic, government revenue will increase.
On the other hand, protectionism may not be a wise choice for economies. It could potentially lead to the downward multiplier effect , meaning one country’s reduction in imports will lead to another country’s reduction in exports. Another problem with protectionism is that when exports are reduced, retaliation can take over and hurt the economy. Although tariffs can work to reduce imports, this could create a welfare cost to the society. Consumers will have to pay higher prices for goods and services they consume.
Recently, China urged the US to resist protectionism in order to avoid damaging their own economy as well the Chinese economy. The US made a legislation that was designed to combat Beijing’s manipulation of currency. The Chinese disapprove of the US congress approving of bill. Exercising protectionism only severely damages the relationship and has negative impact on both economies and the global economies”. The legislation imposed by the US did pass and the legislation authorizes the Commerce Department to impose duties on imports from countries with undervalued currencies. The undervalue of the yuan makes Chinese goods cheaper to buy in the US and at the same time drives up to the price of US goods sold in China.
