free trade and protectionism
Free trade and protectionism
Free trade: It takes place between countries when there are no barriers to trade put in place by governments or international organization. Good and services are allowed to move freely between countries
Pros
Cons
Protecting domestic employment
Protecting the economy from low cost labour
Protecting an infant (sunrise) industry
To avoid the risks of over-specialization
Strategic reasons
To prevent dumping
To protect product standards
To raise government revenues
To correct a balance of payments deficit
Arguments against protectionism
OTHERS :
Red Tape
Health and Safety standards
Embargoes
Nationalistic campaigns
Protecting domestic employment industries that are in decline - cannot compete with foreign competition. Leads to structural unemployment. Exemple Swiss crytal wrist watch vs swiss army knife. Fruits
If the industries are relatively large - high levels of structural unemployment & governments often attempt to protect the industries in order to avoid the unemployment.
BUT
it is likely for an industry to decline - protection will simply prolong the process. There will be short run social costs - it would be better to move the resources into another area of the economy.
The negative externalities of a rapidly declining major industry may be so great that the gov. feels obliged to intervene and protect.
Protecting the economy from low cost labour
The main reason for declining domestic industries if the low cost of labour in exporting companies and that the economy should be protected from imports that are produced in countries where the cost of labour is very low. Consumers have less choice. Inefficency. Exemple: demand for the clothing of the US p.286) cost in terms of job losses may be concentrated in particular industries greater job insecurity among manufacturing workers throughout the more developed countries as workers fear that they will lose their jobs to workers in emerging
Free trade: It takes place between countries when there are no barriers to trade put in place by governments or international organization. Good and services are allowed to move freely between countries
Pros
Cons
Protecting domestic employment
Protecting the economy from low cost labour
Protecting an infant (sunrise) industry
To avoid the risks of over-specialization
Strategic reasons
To prevent dumping
To protect product standards
To raise government revenues
To correct a balance of payments deficit
Arguments against protectionism
OTHERS :
Red Tape
Health and Safety standards
Embargoes
Nationalistic campaigns
Protecting domestic employment industries that are in decline - cannot compete with foreign competition. Leads to structural unemployment. Exemple Swiss crytal wrist watch vs swiss army knife. Fruits
If the industries are relatively large - high levels of structural unemployment & governments often attempt to protect the industries in order to avoid the unemployment.
BUT
it is likely for an industry to decline - protection will simply prolong the process. There will be short run social costs - it would be better to move the resources into another area of the economy.
The negative externalities of a rapidly declining major industry may be so great that the gov. feels obliged to intervene and protect.
Protecting the economy from low cost labour
The main reason for declining domestic industries if the low cost of labour in exporting companies and that the economy should be protected from imports that are produced in countries where the cost of labour is very low. Consumers have less choice. Inefficency. Exemple: demand for the clothing of the US p.286) cost in terms of job losses may be concentrated in particular industries greater job insecurity among manufacturing workers throughout the more developed countries as workers fear that they will lose their jobs to workers in emerging