Protectionism or Free Trade - Which Benefits Humanity as a Whole?
These days we hear words like "free trade," "protectionism," "outsourcing/offshoring," etc. quite often. We read about it in papers, hear about it in TV debates, hear it being mentioned in offices and homes. Am sure most of us know what these words mean – some having been directly affected as a consequence of these policies - so I wouldn't go into the definitions of these words and what they mean. What I am more interested in is whether these policies would benefit us all, or some, and whether we should have a system other than this to save jobs. I find that when we talk of these issues that people tend to take extreme positions - either for or against. When you think about the fact that jobs are being lost as a consequence of these policies, it is natural for extreme positions to be taken. However, what is it that benefits us all in the long term? Long term being the key word here. Because, in the short term, the benefits are not as tangible to most people around the world. There have been calls for protecting local businesses and shutting off foreign competition. However, would doing so really benefit the countries implementing such protectionist measures? Let us examine in brief.
On the face of it, protectionism seems to be the attractive option to save local businesses. Theoretically, you just have to ban certain foreign countries from selling their products in the local markets, or impose high taxes on imported goods, or impose import quotas, and the expectation is that the local manufacturers would benefit and grow as a consequence. But, is it really as simple as it sounds? Does it benefit the consumer? Would consumers who've been used to far cheaper prices pay significantly higher to buy local produce? Would patriotism triumph over economics amongst the buyers of goods? I would leave that to the judgment of the readers! Personally, I don't see people buying goods at far higher prices just because the goods are manufactured locally. If you look around, free trade has played a significant part in driving prices down for the consumer. The biggest beneficiaries of free trade, therefore, have been the consumers all over the world.
Implications Of Protectionism
Protectionism would definitely lead to trade wars, which benefits no one. Other countries would shield their businesses from foreign competition as well and, therefore, one would have a situation where a large number of businesses in the developed countries (Europe and U.S.) would be severely affected, as developing markets are an integral part of their portfolios and often the most profitable part. Boeing, for example, employs tens of thousands of workers to manufacture airplanes to sell abroad. For companies like Boeing and the workers they employ, access to developing markets is crucial to sustaining and expanding their markets and profitability. Of course, Boeing is not the only company for whom the developing market is vital. American farmers too need access to developing markets to export the large quantities of excess wheat and corn they produce. Protectionism, therefore, cuts both ways.
For the developed countries in particular, free trade seems to be the best option, as they need free access to the markets of developing countries. Businesses in developing countries mostly aren’t as export driven and cater to local markets primarily and therefore aren’t in as much need of foreign markets as companies from the developed countries are for access to developing markets. There are those who think that free trade results in job losses only in developed countries and so it is a bad thing for developed countries per se. However, the fact is that job losses occur in developing countries as well – when they open their markets to foreign competition. The local companies in these developing countries aren’t mostly prepared to compete with foreign companies from the U.S. and Europe and survive and most shut shop and there are huge job losses due to this in the developing world as well.
For this reason, there are calls for protectionism in the developing world as well. Jobs are lost, therefore, in both the developing and developed world as a result of free trade; however, it is also true that many more jobs are being created as a result of free trade at the same time. Hence, no one region or country suffers solely due to free trade. The pain is shared and so are the benefits. It is a win-win situation for both the developing and developed world.
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