The Global Financial Crisis and Protectionism
Question 1
Why do you think calls for protectionism are greater during sharp economic contractions than boom periods?
Answer: Calls from business for protection could be based on the fact that in times of sharp economic contractions there is generally a reduced demand for goods and services within the local market. This results in foreign companies and their goods and services competing with domestic companies and their goods and services in a local market characterized by a reduction in demand. Local business would therefore be interested in reducing foreign competing goods and services and their competition. In addition, local businesses may prefer protection to being forced to change business practices in response to the greater completion to secure the reduced demand. Secondly, government and unions may call for the protection of employment since during economic downturns as the reduced demand would lead to increased competition and pressure on input costs resulting I possible layoffs.
Question 2
Despite the sharp economic contraction during 2008-2009, the increase in protectionist measures was fairly modest. Why do you think this was the case?
Answer: The new liberalisation efforts through the WTO as well as through Free Trade Agreements mean that countries cannot unilaterally reverse trade commitments except in specific circumstances. Although certain loopholes exist that allow for some protectionist reactions, these are limited in scope and duration. It may be also be that countries are aware that protectionist tendencies will automatically lead to retaliation from the other countries. Lastly, governments may also have preferred to protect consumer interests and as such resist protectionism which would harm consumer.
Question 3
During 2008-2009 many developed nations gave subsidies to their automobile producers. How might this have distorted international trade? Was this a reasonable thing to do given the circumstances?
Answer:
Why do you think calls for protectionism are greater during sharp economic contractions than boom periods?
Answer: Calls from business for protection could be based on the fact that in times of sharp economic contractions there is generally a reduced demand for goods and services within the local market. This results in foreign companies and their goods and services competing with domestic companies and their goods and services in a local market characterized by a reduction in demand. Local business would therefore be interested in reducing foreign competing goods and services and their competition. In addition, local businesses may prefer protection to being forced to change business practices in response to the greater completion to secure the reduced demand. Secondly, government and unions may call for the protection of employment since during economic downturns as the reduced demand would lead to increased competition and pressure on input costs resulting I possible layoffs.
Question 2
Despite the sharp economic contraction during 2008-2009, the increase in protectionist measures was fairly modest. Why do you think this was the case?
Answer: The new liberalisation efforts through the WTO as well as through Free Trade Agreements mean that countries cannot unilaterally reverse trade commitments except in specific circumstances. Although certain loopholes exist that allow for some protectionist reactions, these are limited in scope and duration. It may be also be that countries are aware that protectionist tendencies will automatically lead to retaliation from the other countries. Lastly, governments may also have preferred to protect consumer interests and as such resist protectionism which would harm consumer.
Question 3
During 2008-2009 many developed nations gave subsidies to their automobile producers. How might this have distorted international trade? Was this a reasonable thing to do given the circumstances?
Answer: