Survey
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
* Your assessment is very important for improving the workof artificial intelligence, which forms the content of this project
EASTERN ACADEMIC FORUM Effects of Trade Protectionism to the Country JIA Shuyi Global Information Centre of Zhejiang Businessmen, Zhejiang University of Technology, Hangzhou, P.R.China, 310023 [email protected] Abstract: There is no doubt that trade protectionism has been on the rise. Every economic crisis is associated with trade or investment protectionism. As the global economic slowdown deepened, a new wave of economic nationalism and trade protectionism has surfaced. There has been a long debate about whether trade protectionism is benefit to the country or not. It is often argued that protectionism is good for the country. Those arguments are rhetorical appealing to and arousing public sentiment. Protectionism doesn’t advance public welfare. In fact, public welfare stands to be hurt by trade protectionism. In this paper, it is going to express my understanding of trade protectionism from aspects of its costs, benefits and impacts as well as historical evidence to prove that trade protectionism is not benefit to the country. Keywords: Trade protectionism, Economic, Debt crisis, Financial crisis, War 1 General Views of Trade Protectionism International trade has been growing faster than growth of world gross domestic products, and countries with freer trade policies benefit more than countries with restricted policies. (Abboushi, 2010) Although nowadays countries rely on one another to a greater extent and have set up clearer rules, political and social factors still far more outweigh the economic incentives. Yet, trade protectionism continues to be exercised in response to pressure from select industries and political constituencies. Protectionism is the economic policy of restraining trade between states and countries through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically. (James, 2012) The protection of national trade policy is to actively interfere with the import and export of goods, using various measures to restrict imports of goods, protection of domestic markets and domestic production, so that goods from foreign competition; give preferential treatment to domestic and export subsidies, to encourage the expansion of exports. But, think about it, once imported goods have been restricted, supply will decrease, with same domestic production which might even be not enough for domestic demand, what left for exporting? People may ask what impact protectionism will have on the global economy. In my opinion, every country would turn into a closed economic body if all countries only bought their own products. We would face the crisis in isolation and be defeated. Trade protectionism would surely hurt the economies to a greater extent, and then pass the crisis on. (Zhang, 2009) When reviewing the big recession in the 30th of last century, all admit that the Smoot-Hawley act, which tried to transfer the crisis to other countries, led to international trade conflicts, harmed international trade, and exacerbated every country's recession. 2 What Trade Protectionism Costs? Classical Liberal philosopher John Stuart Mill astutely observed in the last century that "Trade barriers are chiefly injurious to the countries imposing them". It is still true today as it was then, reasons are as follows: 164 EASTERN ACADEMIC FORUM 2.1 Lost jobs Advocates are always touting preaching that trade protectionism is to make people buy domestic goods, promote domestic consumption, help domestic enterprises and so that to help create jobs. Nevertheless, my view is just the opposite. Protectionist policies raise tariffs on imported goods and impose quotas on the amount of goods governments permit to enter into a country. Trade protectionism not only restricts the choice of consumer goods, but also contributes greatly both to the cost of goods and to the cost of doing business. (Miller & Elwood) Therefore, it not only doesn’t help increase domestic employment, but because of the increasing raw material costs and retaliation of other countries make more American companies bankruptcy and leading to more serious unemployment problem and in the end is “shooting yourself in the foot”. Thus, in long term, under "protectionism" people end up poorer, with less money to buy things they want and need, which reduces consumer spending power, makes company cut job positions and so that cause jobs destroying. According to the US Department of Labor's own statistics, "protectionism" destroys eight jobs in the general economy for every one saved in a protected industry. 2.2 Higher prices It is said that Japanese consumers pay five times the world price for rice because of import restrictions protecting Japanese farmers. European consumers pay dearly for European Community restrictions on food imports and heavy taxes for domestic farm subsidies. American consumers also suffer from the same double burden, paying six times the world price for sugar because of trade restrictions. (Miller & Elwood) The US Semiconductor Trade Pact, which pressured Japanese producers to cut back production of computer memory chips, caused an acute worldwide shortage of these widely used parts. Prices quadrupled and companies using these components in the production of electronic consumer goods, in various countries around the world, were badly hurt. All these examples above show that once government makes import restrictions, the domestic supplydemand relation is going to change. Therefore, facing same demand, with significant decrease in supply, prices will absolutely go up. 2.3 The debt crisis Advocates of protectionism are alarmed at the deficit in the balance of payments' current account. When trade deficit persists and grows, politicians begin to wield protectionism to battle the perceived injustice in the country's trade relations. (Abboushi, 2010) Taking the view to the western makes me feel that they are such a kind of self-contradiction. On one hand, western banks are owed hundreds of billions of dollars by Eastern European and Third World countries. On the other hand, trade restrictions by western governments, however, have cut off western markets for these countries, making it virtually impossible for them to earn the hard currencies necessary to repay their loans. This increases the very real possibility of a collapse of the world banking system. 2.4 Higher taxes On one side, governments invariably expand their Customs Department bureaucracies to force compliance with their new rounds of trade restrictions. Those bureaucrats must be paid. On the other side, for trading companies, Protectionist laws not only force you to pay more taxes on imported goods, but also raise your general taxes as well. There is also the increasing expense of more red tape, paperwork and more harassment of individual travelers passing through the borders. 3 Who is Behind Trade Protectionism? In spite of evidence of damage caused by trade restrictions, pressure for more "protectionist" laws persists. Who is behind this, and why? Talking about this, I have to mention that from my understanding, 165 EASTERN ACADEMIC FORUM I feel that, to some extent, it is the wealthy people who are greatly involved in manipulation of national economic policies. Special-interest groups, who gain from "protectionist" laws, are big corporations, unions, and farmers' groups – all of whom would like to get away with charging higher prices and getting higher wages than they could expect in a free marketplace. These special interests have the money and political clout for influencing politicians to pass laws favorable to them. Politicians in turn play on the fears of uninformed voters to rally support for these laws. (Miller & Elwood) Another point I have to make pertains to government’s motive. My concern is mainly point to a very strong force – politics, not the international political relations but the domestic political pressures and competition. To objectively say, politicians of all factions are of course vying for serving the interests of the politically capable and aggressive interest groups. While this may be part of the nature of the democratic political system where the government responds to the pressures of the politically active and resourceful interest groups, the drawback is the loss incurred in the public, the large sections of the population whose welfare is compromised by trade protectionism. 4 What We are Benefit from Trade Protectionism? Senior Economist of Fraser Institute in Canada, Walter Block said "Protectionism is a misnomer. The only people protected by tariffs, quotas and trade restrictions are those engaged in uneconomic and wasteful activity. Free trade is the only philosophy compatible with international peace and prosperity". Let’s see what we as ordinary consumers are benefit from trade protectionism. Increasing taxes and higher prices with decreasing imports, life can still be going on, but will become more and more troublesome with bigger and bigger cost. Think about it, if tennis shoes from China cost only 20 dollars but 100 dollars if manufactured in the United States, why punish the poor for the sake of protection domestic industries? Our freedom is being trampled into the dust by those protectionist policies, and we are literally kind like being robbed, through taxes and higher prices, in order to line the pockets of a few politically-privileged "fat cats". 4.1 “Buy American” Lets’ turn back and think about “buy American”. What is “buy American”? What is “Made in U.S.A.”? What those American multinational enterprises could do? Or is that mean those foreign enterprises in US are safe? Have those people who support “Buy American” ever think about where the iphones in their made from or where the Honda cars they drove made from? Will they stop buying those things? Statistics shows that U.S. manufacturing accounts for only 13% of GDP, of which 7% is military. From all U.S. material object products, 25% rely on imports and 40% of consumer goods rely on imports as well. How many varieties and quantity of goods there are for Americans to buy and how Americans can afford expensive American goods? Or we can think about it in this way: are products of American multinational enterprise made overseas belong to “American goods” or are products of foreign multinational enterprises made in the United States belong to “American goods”? In the first case, US companies make money, but leave jobs to the foreigner; in the second case, American people get jobs but money was made by foreign companies. No wonder there are so many American multinational enterprises who have tried hard to oppose the “Buy American” clause. I still remember another example given from “The Washington Post”. In 2003, Indiana governor canceled a 15 million contract with an India company in response to the state’s unemployment claims. That contract was passes over to a US company charging of 23 million. Because the price rose by 53%, the state cut 8 million spending to schools, hospitals, law enforcement agencies and other units. What benefits brought to people in Indiana by this contract? 166 EASTERN ACADEMIC FORUM 4.2 A year without “Made in China” Here, I want to mention a book which I read last year called A Year Without “Made in China” by Sara Bonqiorni. On 2004’s Christmas, Sara suddenly realized that of 39 presents, 25 are “made in China”. Meanwhile, the DVD, shoes, socks, toys, lamps and so on are also all from China. Facing a moment like this, she can’t help but think that if without Chinese products, can Americans survive? Is the age of globalization really have already quietly been into our life? So Sara came up with a decision that from January 1st of 2005, led the family began to try not to buy any Chinese products in one year. In the huge global economy, little trivial life is full of thought-provoking and funny pieces. Sara had to pay $68 for a pair of “Italian” shoes for her 4-year old son; when wreak havoc of mice, should she choose humane mousetrap but made in China or inhumane insecticides. In that year, Sara had to manage her rebel husband, make her son who likes toys a lot often disappointed, and at the same time cannot completely reject Chinese goods. So finally, one year later, Sara family was happy to meet “made in China” again. The author is a journalist, she uses her pen to write moving and fun life of her family and also left a clear picture for China brought great consumers benefits to the world with an increasingly important position. The book is not only show that the Chinese manufacturing industry giants are quietly changing Americans’ life, but also emphasized the reality of globalization, and more important, where the world economy will go to. 4.3 From historical data analysis We would like to insight the U.S. trade data and U.S. economical growth rate. Figure 1 U.S Trade Balance vs. U.S GDP According to the Figure 1, we can easily draw a conclusion that although United States has been in Trade deficit since 1970, it still has a relatively stable GDP growth rate. Free trade does not affect the economic growth rate of a certain country. 5 Will Trade Protectionism Cause a War? Sanctions and blockades are extremely dangerous and should be considered acts of war. By reviewing historical cases about trade protectionism, I came up with such a question that what will be the most 167 EASTERN ACADEMIC FORUM serious and worst consequences of protectionism. Will a trade war be the end? Ludwig Von Mises said "What generates war is the economic philosophy of nationalism: embargoes, trade and foreign exchange controls, monetary devaluation, etc. The philosophy of protectionism is a philosophy of war". Often, when the government of Country A sets up trade barriers against the goods of Country B, the government of Country B will naturally retaliate by erecting trade barriers against the goods of Country A. The result, in my opinion will be that a trade war causes both sides lose. What’s more, all too often, a depressed economy is not the only negative outcome of a trade war. History is not lacking in examples of cold trade wars escalating into hot shooting wars: 5.1 British tariffs provoked the American colonists to revolution, and later the Northern-dominated US government imposed restrictions on Southern cotton exports – a major factor leading to the American Civil War. 5.2 In the late 19th Century, after a half century of general free trade (which brought a half-century of peace), short-sighted politicians throughout Europe again began erecting trade barriers. Hostilities built up until they eventually exploded into World War I. 5.3 In 1930, facing only a mild recession, US President Hoover ignored warning pleas in a petition by 1028 prominent economists and signed the notorious Smoot-Hawley Act, which raised some tariffs to 100% levels. Within a year, over 25 other governments had retaliated by passing similar laws. But what’s the result? World trade came to a grinding halt, and the entire world was plunged into the "Great Depression" for the rest of the decade. The depression in turn led to World War II. (Miller & Elwood) As mentioned in the class about why Japan suddenly attacked Pearl Harbor in 1941. Stopping all flow of oil to Japan in early that year was a significant factor. 5.4 Ron Paul in his book “Liberty Defined” also said that policies of sanctions and blockades were “a prelude to our unwarranted and illegal invasion and occupation of Iraq”. Iraq is a good case in point: sanctions were imposed through the 1990s and then the real war followed. Yet we see trade barriers being raised around the world by short-sighted politicians. Will the world again end up in a shooting war as a result of these economically deranged policies? Can we afford to allow this to happen in the nuclear age? 6 Conclusion American is a free-market economy country and a world advocate of international trade free of restrictions. However, significant protectionist measures have always been, and continue to be imposed on trade in a variety of industries purportedly to protect those industries and public interest. As Ron Paul in his book Liberty Defined said, “trade and friendship diminish chances of war with other nations”. We cannot either say completely free trade is absolutely feasible, or totally abandon protectionist policies, but at least, the argument about protectionism is good for the country is reasonable. Since the financial crisis began in 2008, G-20 countries have imposed 550 measures to restrict or potentially distort trade. Such measures disrupt international supply chains, reduce economic activity and dent the sense of common purpose that was needed to survive the economic crisis. Giving in to the protectionist impulse can only make matters worse. The welfare of protected interest groups may be advanced, but always at the expense of the larger society. 168 EASTERN ACADEMIC FORUM References [1]. Abboushi, S. (2010). Trade Protectionism: Reasons and Outcomes. Competitiveness Review, pp.384-394. [2]. James, J. (2012, 3 7). http://josephjames007.blogspot.com/2012/03/free-trade-versus-protectionism -in.html. Retrieved from Blog nang joseph. [3]. Miller, V. H., & Elwood, J. R. (n.d.). http://www.isil.org/resources/lit/free-trade-protectionism.html. [4]. Zhang, Y. s. (2009, 2 23). Is Protectionism a Threat to the World Economy? 169