Protectionist policies are the threat to the free trade at a global level. The situation that occurs with the organisation because of protectionist policies is analysed in context with the trade for this assessment. Trade protectionism is a policy which enables the government to protect and secure the domestic firms from the foreign competition. It helps the domestic firms to get a relative advantage against foreign firms in the domestic market.
Critically evaluate the positive and negative aspects of a more protectionist trade policy for an emerging/ or a mature economy.
Technology and cost of a product
After the globalisation, the multinational companies are free to trade in any part of the world. To protect the local companies some of the countries impose high tariffs, restrictions, subsidies, import quota and other tariffs on the product of foreign companies. The cost of the foreign product in the local market Rises because of huge tariffs. This favour from the local government to the local company in any country provides a competitive advantage to a local company (Goodman, 2018). On the other side in the views of De Bièvre & Poletti, (2015), implementing protectionist measure results in less development of the industry in the particular country. The foreign company can be an advance in Technology and local company may not be advanced. Because of the imposition of higher tariffs on that particular company profit will be less. After that this company will invest less amount in research and development because of let’s profit and a high amount of tax and tariff.
Employment and Competition
As prescribed by Rugman & Verbeke, (2017) the development of local companies can be possible because of the protectionist policies of trade. Local employment can be created because of the survival of the local company. Favour from the local government helps any local company to gain profit and it starts its expansion of business that will help in the creation of more local employment. While as per Durusoy, et. al., (2015), there will be less competition among the organisation because of fever to the local organisations. This will lead to less innovation in the product. Multinational companies outsourcers its work so that profit can be achieved. This outsourcing finishes employment in the non-domestic country. This is also a policy that is implemented by a multinational organisation against countries that implement protectionist measures.
In the views of Deardorft (2012), slowing down of the economic growth is the situation after the implementation of protection measures by the countries for free trade under globalisation. Product price of MNCs gets increased because of protectionist policies. High prices of the product lead to the customer not to buy MNCs product. Therefore there will be less tax collected by the government. This will lead to slowing down the rate of economic growth. But Durusoy, et. al., (2015), suggested that less competition in the market is the situation then there will be less demand and popularity of the product in the market. This situation also affects sales and hence the economy. Tariffs can be used for the correction of imbalance in the price of production. if any country is providing subsidy on wheat providing local companies then that country can impose tariffs on the MNC that are providing wheat. This will provide an opportunity to earn tax from MNC.
Miscellaneous critical analysis
There has been a lot of discussion about whether protectionism is beneficial or not, let us scrutinizes the pros of this policy.
- One of the important features is that protectionism helps in the regulation of the economy. As the imports decrease, domestic companies face less competition and are able to survive in the market. It will make the domestic economy stronger as it will make the resources put to use to their full potential and hence the firms will be able to produce and supply more to the customers.
- It also helps the emerging businesses to transform themselves at the prevailing market rates as they will not be burdened by foreign competition. These budding firms can build themselves till the time they are strong enough to compete in the global market.
- It creates a feeling of togetherness within the people. This means that the people become more patriotic and work with each other instead of working as a slave in a multinational company.
- It becomes extremely important to impose protectionism in terms of national security, industries like defence, hospitals, prisons, etc. should never be given in the hands of foreign players so that the national security is not attacked in any possible way. In the words of Goodman (2018), There are different types of products that can be developed by implementing protectionist policies. The products of Defence should be developed by any country for its security. If any country depends on a foreign company for its defence products then the serious problem can occur to the nation in the wartime. Therefore it is very necessary to implement this strategy in such type of cases. As per the argument of De Bièvre and Poletti, (2015), defence sector of any country can be made better with the help of innovation by the foreign companies. Therefore protectionist policies should not be implemented. It stops the innovation and development in the Technology for the defence products.
- Free trade runs on the belief that it is beneficial for all the people around the globe, however, in reality, it is distributed unevenly wherein only a few individuals can take advantage of the opportunities and make the most out of them. Protectionism takes care of this problem and narrows the gap in the inequality of income (Milne Publishing, 2018).
- When foreign competition is allowed to enter the domestic market, there is a possibility that national deficits might emerge, protectionism helps in avoiding the emergence of the national deficit.
- Not only does it help in avoiding national deficit but with the help of excise duties and tariffs, the government is able to generate a huge amount of money. For example, the US government was able to generate a total revenue of around $44 billion through the policies of protectionism (Vittana, 2018).
Moving on to the disadvantages of protectionism, some of them are discussed below.
- The prices of the products are increased instead of falling down. The tariffs on imports increase the overall cost of the product which is borne by the customer as companies do not take up the onus of bearing the costs. And domestic firms, on the other hand, increase the prices of their products in order to match up to the foreign prices so that they could make more profit.
- Limited choice is available to the consumer. The consumer has to invest more in local products because of the high price. The development of variety in the products is not accomplished because of protectionist policies implemented by many countries. Protectionism does not provide the customers with a wide range of choices to purchase from, it restricts the choice of the customer and hence the customer might even have to compromise with the quality as foreign products are usually perceived to have a higher quality than local products (Ferdman, 2014).
- Protectionism provides a safe environment to the domestic businesses which make them believe that they will continue to grow, it is only through free trade that a local firm can grow as it needs to compete with the foreign firms and survive in the global environment (UK Essays, 2016).
- Trade protectionism can impede the political relationships between two countries, as when one country imposes tariffs, it might create a negative impact on the other country and hence damage their relationship.
- Protectionism might help a nation to grow in the short run, but in the long run, the economy would begin to lose its efficiency and the innovation would decrease over time (Goodman, 2018).
Protectionist measures are the hurdle in the path of growth of multinational companies in non-domestic countries. Protectionist policies are creating disturbance in the economy at the global level. Protectionist policies are against the globalisation. Protectionist policies help the local organisation to grow. Protectionist policies are having advantages as well as disadvantage both for any country.
De Bièvre, D. and Poletti, A., 2015. Judicial politics in international trade relations: Introduction to the special issue. World Trade Review, 14(S1), pp.S1-S11.
Deardorft, A., 2012, July. Easing the burden of non-tariff barriers. In International trade forum (No. 3, p. 26). International Trade Centre.
Durusoy, S., Sica, E. and Beyhan, Z., 2015. Economic Crisis and Protectionism Policies: The Case of the EU Countries. International Journal of Humanities and Social Science, 5(6), p.1.
Ferdman, R. (2014). The Washington Post. [Online] Available at: https://www.washingtonpost.com/news/wonk/wp/2014/12/03/how-the-worlds-biggest-companies-bribe-foreign-governments-in-11-charts/?utm_term=.642a5a509957 [Accessed 27 Oct. 2018].
Goodman, P. (2018). The Pros and Cons of Import Tariffs and Trade Protectionism. [Online] Soapboxie. Available at: https://soapboxie.com/economy/Pros-and-Cons-of-Trade-Protectionism [Accessed 27 Oct. 2018].
Grin.com. (2013). GRIN – The Effects of Bribery and Corruption on Multinational Corporations. [Online] Available at: https://www.grin.com/document/340648 [Accessed 26 Oct. 2018].
Meschi, P. (2009). Government corruption and foreign stakes in international joint ventures in emerging economies. [Online] Ideas.repec.org. Available at: https://ideas.repec.org/a/kap/asiapa/v26y2009i2p241-261.html [Accessed 26 Oct. 2018].
Milnepublishing.geneseo.edu. (2018). 10. Corruption in International Business – Good Corporation, Bad Corporation: Corporate Social Responsibility in the Global Economy. [Online] Available at: https://milnepublishing.geneseo.edu/good-corporation-bad-corporation/chapter/10-corruption-in-international-business [Accessed 26 Oct. 2018].
Rugman, A. and Verbeke, A., 2017. Global corporate strategy and trade policy. Routledge.
UK Essays. (2016). The International Globalization Vs Local Brands Fashion Essay. [Online] Available at: https://www.ukessays.com/essays/fashion/the-international-globalization-vs-local-brands-fashion-essay.php [Accessed 27 Oct. 2018].
Vittana.org. (2018). 13 Most Valid Protectionism Pros and Cons | Vittana.org. [Online] Available at: https://vittana.org/13-most-valid-protectionism-pros-and-cons [Accessed 27 Oct. 2018].