Tag Archives: Protectionism

Trade Liberalisation: Can Restriction and Protectionism ever be a sound policy (Part 2)

Guest post by Sumantra Maitra

Will Protectionism help?
There is an argument that the poor can be protected with trade restrictions and protectionism. Protectionism in economic terms can be explained as a tendency to stifle free trade or competition with tariffs, duties, levies, subsidies, license or quotas, and the proponents argue that protectionism is beneficial for a lot of reasons. The main reasons are that comparative advantage has lost its legitimacy and meaning, as capital is free to move across the globalised integrated world, nascent and infant industries should be protected, to a position where they can grow and compete, and finally, Laissez Faire capitalism and unrestricted competition creates social evil.

For a start, protectionism has been criticized by almost the majority of economists across the spectrum. The biggest criticism is that protectionism promotes incompetence. The infant industry idea is completely baseless as the industry will remain infantile and shelled in a cocoon, if it never faces the competition from outside. Also, one important thing which is compromised in protectionism is quality of goods and the consumers are the biggest losers. It is not clear how many jobs protectionism and trade restrictions can actually save, maybe some jobs in the short run in some industries, but it “prevents the expansion of jobs in similar industries”.   A simple but prudent example would bring us back to India, where in 1984; there was only one private car manufacturer, the “Ambassadors”, which churned horrible, technologically inferior behemoths, unavailable to the mass other than the elites. After liberalization, now not only there are innumerable choices, but great competition which assures production quality at the highest and world standard, prices low, and different domestic car manufacturing and auxiliary industries guarantying jobs for millions.

The trend of protectionism is growing however, alarmingly across the World. Director General Pascal Lamy of WTO, warned against trade restrictions, in a speech in June 2011, during the height of global recession, that the “protectionist pressures remain and are being generated by stubbornly high levels of unemployment in many countries, persistent global imbalances, and macroeconomic concerns”  Recently EU parliament called for tighter restrictions on bank’s trading activities, and opposed greater competition between clearing houses.   Also there is a growing tendency of Economic Patriotism in United States which can be detrimental for consumers.

To summarize, trade liberalization effects on consumer pattern and income patterns of the poor, and even though there are opposing views and ambiguity on the changes in wages and welfare of the poor, overall it should be encouraged for the following reasons. Trade pessimism never helped any country, simply because we live in a globalized world, and centralized or autarkic economy will find it hard to survive. A lot of arguments against trade liberalization come from countries like sub-Saharan Africa, which are maybe due to flawed institutional and structural systems, or due to the overall scenario of investment, materials, productivity and a lot of other factors, trade liberalization is not as beneficial for the poor as it was supposed to be. Chronic political instability is also a major factor in these countries. The assessments don’t include liberalization of services, trade facilitations, elimination of licensing and non tariff barriers, domestic reforms or markets, and most importantly welfare of workers, which can have massive repercussions for the mass and could potentially blunt any move to open up free trade.   The fact that trade liberalization worked for certain countries poor and not for others are a testimonial that it is not the concept of liberalization, but the factors and modes to liberalize is what matters for the poor. That being said, more research is needed to actually integrate the poor so that a vast majority of the downtrodden living below poverty line across the world can have equal opportunities. Identification of the problems in Latin America or Sub-Saharan Africa, and employing the solutions is the hardest challenge facing humanity. Even though the overall percentage of poverty has declined, but the number of people living under dollar two a day has increased enormously, mostly in sub-Saharan Africa. More research needs to be done to identify the causes and act for the remedy. If not provide the guarantee to feed every mouth on planet, atleast to provide the opportunity to tap in the benefits of globalization.

Download complete paper: Trade Liberalisation: Can Restriction and Protectionism ever be a sound policy

(Sumantra Maitra is a freelance journalist, currently a post grad scholar of International Studies, and a tutor of New Zealand Foreign Policy and Theories of International Relations, at the University of Otago, New Zealand. He would like to thank Prof. Robert Patman, Politics Dept. University of Otago, and Prof. David Fielding, Economics Dept. University of Otago, for their support and guidance.)