Evaluating the Impact of Protectionist Trade Policies on Developing

Introduction

Free trade implies that nations can export and even import goods without facing any form of tariff barrier or non-tariff trade barriers. Indeed, free trade would make this world better off as there are various benefits associated with it. For instance, free trade enables increased exports, economies of scale, greater choices of goods, as well as lower prices for consumers. However, it is clear that free trade poses negative implications for both developing and/or developed economy, for some reasons such as it hurts domestic production (Kee et al., 2013). This paper thus purposes to critically evaluate the impact of a protectionist trade policy for a developing and/or a developed economy.

Trade protectionist policy poses as a controversial tactic that economists, as well as policymakers are using in a bid to enhance the economic well-being of a

nation. Over the years, it has been used, intentionally, with the aim of aiding either a developing and/or a developed nation to recover from economic downturns. However, in various instances, the opposite impact occurs in which many nations suffer economic setbacks such as depression and even recession (Petersen et al., 2017). In understanding protectionist trade policy, it is vital in understanding the reason as to why it is done and the impacts it has on a nation’s economy.

Essentially, protectionist trade policy provides a trading bloc that creates trading barriers, whilst having a specific aim of protecting an economy from potential perils associated with international trading. In other words, its main objective is to protect a country’s vital economic interest and this may include its key industries, worker employment and even commodities (Gnangnon, 2017). Despite the intention of economists, and policymakers, it is evident that protectionist trade policy has long-term and short-term impacts on the economy of a developing and/or a developed nation. These are as discussed below:

Protectionist trade policy implies that consumers have limited choice, and also purpose to pay more for either goods or services. This is because there are quotas on the amount to be imported. Notably, due to such quotas, it is worth noting that consumers have a limited choice as regarding quantity, quality, as well as the type of product, which would otherwise be accessible to them without the policy of trade protectionism (Gnangnon, 2017). The protectionist trade policies, which are intended to protect industries, companies and even jobs often imply that consumers are only limited to the accessibility of products as well as goods, and as such, they are left with the option of settling for poor-quality instead. Another risen problem is that consumers have to pay much for the limited quantity of either goods or products and this results into increase in inflation. In an instance where consumers only have a limited choice, where they only have the option of settling for lower quality or paying much for given products, then they can either pay that given amount, buy less of the given product or fail to make a purchase eventually (Fordham, 2017). Notably, domestic firms may as well be financially shaken, owing to the fact that they may also have to buy part in making their products, and as such, pass the increased cost to the consumer. Definitely, it can then be deduced that global competition poses as a key factor towards keeping the costs of various goods, as well as products down and thus, giving consumers the capability to spend.

In either developing and/or developed countries, there are infant industries that ma never grow because of protectionist trade policies (Gnangnon, 2017). A country can decide to use a protectionist trade policy in safeguarding its infant industry, however, how long this lasts poses as a key concern. It is worth noting that protecting an infant industry may result into having a government to use a huge amount of money, as well as financial resources. In turn, this may result into inefficiencies, yet the infant industry may have no given incentive to be able to make efficient, intelligence, as well as long-term investments through borrowing funds or even issuing common stock various domestic international capital markets (Findlay, 2017). Notably, this kind of protectionism may significantly hinder the maturation process, as well as the growing pains that are significant for an infant industry to be able to experience in a shorter or longer term if it aims to be successful and as well competitive in a global market, thus also have a comparative advantage.

Moreover, protectionist trade policy brings forth exchange rate controls, which cause long-term inflations, majorly because domestic nations have purposed to keep the value of their currencies low. Notably, developing countries decrease the value of their currencies, for them to be able to sell their goods and products at cheaper prices, especially in the global market. As such, any foreign product that is sold in their domestic markets would actually have an increase in price (Fordham, 2017). As such, consumers are forced to pay high prices for good, products, as well as commodities as they also need to survive in the market. Overall, it is evident that a nation may desire to assist its industries to become competitive abroad whilst its citizen may be subjected to paying high prices at home.

Finally, protectionist trade policy brings forth trade wars amongst many nations. In this regard, nations often tend to reciprocate actions when there are trade protection policies that have been effected. As such, they tend to retaliate in an instance where they cannot sell their products in markets where they could easily sell (Bollen, 2018). Even when nations are political allies, they thus impose countervailing tariffs, quotas, exchange rate controls, as well as subsidies among others, in order to be able to deal with the actions of another country. In the end, consumers bear the costs in a billion dollars whereas they also experience limited consumer choices. Moreover, trade wars ultimately imply that there will be increased costs of importation, as manufacturers/producers would pay for equipment, commodities, as well as intermediate products from various foreign markets. It is also evident that this impacts on the real GDP growth of a nation (Fordham, 2017).

Owing to the above explanations, it is worth noting that whilst some economists, as well as policymakers feels that protectionist trade policy would significantly assist in the growth of a developing and/or a developed country’s economy, many others have the feeling that the policy damages could be severe. For instance, as mentioned above, other scholars believe that protectionist trade policy could cause trade wars, which in turn could bring forth or trigger a global recession. On the other hand, other scholars have the belief that protectionist trade policy is punitive and as such, it is consequential that it could lead to a public trade spat with various markets. Also consequentially, these other markets can be retaliatory. Overall, based on the above explanations, it is evident that protectionist trade policy ought to be considered in a careful manner, owing to the dangerous repercussions that can be caused to either a developing or a developed country’s domestic economy and even globally.

References

Bollen, Y. (2018). EU trade policy. In Handbook of European Policies. Edward Elgar Publishing.

Findlay, R. M. (2017). Britain under protection: an examination of the government's protectionist policy. Routledge.

Fordham, B. O. (2017). Protectionist Empire: Trade, Tariffs, and United States Foreign Policy, 1890–1914. Studies in American Political Development, 31(2), 170-192.

Petersen, T., Schoof, U., Yalcin, E., Felbermayr, G., & Steininger, M. (2017). Global impact of a protectionist US trade policy. GED Focus Paper.

American Political Development, 31(2), 170-192.

Gnangnon, S. K. (2017). Empirical evidence on the impact of multilateral trade liberalization on domestic trade policy. Global Economy Journal, 17(3), 20170047.

Gnangnon, S. K. (2017). The impact of multilateral trade liberalisation on economic development: Some empirical evidence. Economic Affairs, 37(3), 397-410.

Kee, H. L., Neagu, C., & Nicita, A. (2013). Is protectionism on the rise? Assessing national trade policies during the crisis of 2008. Review of Economics and Statistics, 95(1), 342-346.

Petersen, T., Schoof, U., Yalcin, E., Felbermayr, G., & Steininger, M. (2017).

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