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HI5003 Economics for Business Assignment Solutions
Trade protectionism is a kind of policy which limits any kind of unfair competition from the foreign industries. Though it works quite well in the short run, however, in the long run, it may be destructive. There are lots of advantages and disadvantages in case of trade protectionism. Protectionism is, therefore, measures of trade or the economic policies which are imposed by the government of the concerned country in order to protect the domestic business intelligence and the industries from any kind of foreign competition. Protectionist policies consist of subsidies, import quotas tariffs or any other kind of restrictions (Draper, 2017). Protectionism in the United States of America includes tariff and other barriers to trade with other nations. It was imposed in order to protect the northern industries. The tariffs were also termed as Trump tariffs when imposed during the presidency of Donald Trump. It has been found out that Trump had imposed tariffs on washing machines and solar panels in January. He had also imposed tariffs on steel and aluminium from majority of the countries. Most of the economy is moving to a protectionist after the international trade. A protectionist policy can also be termed as that policy which provides a kind of unfair advantage to the home industry. The U.S president Donald Trump had also withdrawn The Trans Pacific Partnership deal and also abandoned the NAFTA trade deal with Canada and Mexico (Xiong, & Beghin, 2017). The Trans Pacific Partnership deal is an agreement between twelve countries which border the Pacific Ocean who represents half of the economic output in the world. Along with this a thirty five percent tax was imposed on every automobile imported by the US. In the month of July, he also implemented tax on 800 categories of goods which are imported from china.
Effect of trade protectionism proposed by Trump
In this case Trump has imposed tariffs on the imported goods. Tariffs are tax imposed on imports which can brought from other foreign markets. The government here tries to restrict imports of foreign goods and services in order to protect the domestic industries and companies which manufacture the same items. Tariffs will also help the domestic producers to raise tax revenue. When a country is trying to grow strong in any kind of new industry, imposing tariffs will protect them from foreign competitors (Explainer: what is protectionism and could it benefit the US economy?, 2018).The tariff will then also help the new industry develop the comparative advantage. In the short run tariffs also help in providing jobs for the domestic workers. However, in the long run trade protectionism like tariffs will hamper the industry. When there is any absence of competition companies in domestic markets will not innovate. Therefore, the domestic product will then decline in quality and eventually it will become more expensive when compared to the foreign goods.
Effect of tariff
Fig1: Effect of Tariff.
The above diagram shows that the tariff is between P1 and P2. Before imposing tariff the import was Q4Q1. After government imposed tariff, the import declined to Q3Q2. The Government receives a tariff revenue of Q3. The consumer surplus falls down by 1+2+3+4. The imposition of tariff will raise the world supply curve. After the imposition of tariff the price rises to P2. The domestic consumers faces high prices along with loss in the consumer surplus. There has also been a net welfare loss of amount 2+4.
Short run and long run effect of trade protectionism
Although trade protectionism can employee benefit the domestic industries in the short run, it can lead to slower global growth in the long run. In the long run protectionism can also lead to instability which can lead to conflicts between countries. Trade protectionism also protects jobs and industries. In the long run trade protectionism can result in price war among nations. Increasing protectionism in the United States will also slower the economic growth which can also result to more layoffs (Explainer: what is protectionism and could it benefit the US economy? 2018). When United States will impose tariffs the other countries will follow the same which will cause more layoffs. However, tariffs have many advantages and disadvantages. Trade protectionism can also prevent dumping. Tariffs can discourage trade as well as imports. Tariffs also discourages competition. It also discourages foreign investors from investing in the domestic countries which will have a negative impact on the economy. Protectionism can make domestic firms much less competitive in the export market. Tariffs in the short run will protect the local industries from collapsing. Tariffs will also discourage the foreign industries from importing goods that are cheap and hence they product the local industries (Draper, 2017). Tariff also reduces dumping that is it protects the country from being a recipient of goods that have been often rejected from other countries. In the long run tariffs will have negative effect in the economy. Tariffs also affects the international relations with other countries.
1. Draper, T. (2017). American business and public policy: The politics of foreign trade. Routledge.
2. Explainer: what is protectionism and could it benefit the US economy? (2018). Retrieved from https://theconversation.com/explainer-what-is-protectionism-and-could-it-benefit-the-us-economy-7370
3. Lavergne, R. P. (2014). The political economy policy of US tariffs: An empirical analysis. Elsevier.
4. Rodrik, D. (2018). What Do Trade Agreements Really Do?. Journal of Economic Perspectives, 32(2), 73-90.
5. Rugman, A., & Verbeke, A. (2017). Global corporate strategy and trade policy. Routledge.
6. Xiong, B., & Beghin, J. C. (2017). Stringent maximum residue limits, protectionism, and competitiveness: The cases of the us and canada. In Nontariff Measures and International Trade (pp. 193-207)