Protectionism Vs Free Trade Essay Research Paper

Protectionism Vs. Free Trade Essay, Research Paper

Protectionism vs. Free Trade

Part I – The World’s Economic Debate

Today people throughout the world are aware that they depend for their daily bread on something called “the economy,” and they are aware that they are vulnerable because “the economy” is vulnerable. People are aware that their local economies are somehow inserted in international trading patterns, and that what happens to them personally in their daily lives is affected by distant commerce. However, the importance of the global market for contemporary society is often underestimated and the distant trade is actually not so distant.

The idea that international trade can facilitate economic growth by expanding the size of the market is as old as the economics profession itself, tracing back to Adam Smith’s 1776 discourse on the gains from specialization of trade. Nevertheless, along with the idea of international trade, another concept of commerce runs called protectionism. A century and a half ago French economist and statesman Frederic Bastiat presented the practical case for free trade: “It is always beneficial,” he said, “for a nation to specialize in what it can produce best and then trade with others to acquire goods at costs lower than it would take to produce them at home” (Berdell 2). A case for protectionism must also be remembered when 1977 AFL-CIO President, George Meany said, “Free trade is a myth. Foreign countries subsidize their manufacturers, which enables them to undercut United States companies and take the jobs of American workers This is not competition – it is a stacked deck, stacked against the American worker If we pursue the policies that have gone on for the last few years, we’re going to be a completely service nation” (Freshman 383).

Part II – Protectionism

Many advocators of protectionism, including Patrick J. Buchanan, are always willing to claim that free trade is a myth. Buchanan goes on to say, “It envisions a future that will never exist and assumes an ideal world that does not exist” (Freshman 383). Those who see these and other fallacies of free trade often turn to the economic theory of protectionism for answers. In short, protectionism can be defined as a system of policies and devices created by governments in order to develop or preserve domestic industries by protecting them from foreign competition, usually through duties imposed on importations. The theory of protectionism, similarly to that of free trade, has many strengths and weaknesses that must be examined and weighed carefully in order to determine the best economic trade policy.

Pat Buchanan states one of the main points of protectionism clearly when he said, “No superpower can rely on foreign trade for the necessities of national survival – and remain a superpower” (Freshman 384). If the United States wishes to preserve its status of world power, it must keep its money at home in domestic industries instead of supporting foreign firms. Trading with countries that are socialist or violate human rights will only strengthen and support their industries. They must instead support domestic firms to keep the money and power in their own country. However, this concept can hurt the national economy also. If a country does not spend money on imports, they will not be able to export goods to countries that would otherwise patronize the merchandise. Also, through buying imports, a country or industry will give up an intangible asset (money) in order to gain tangible assets (imported goods) that they can use and profit from (Frum 22).

Another argument for protectionism is that this economic system will not only protect key industries but more-so safeguard developing infant industries. Protectionism is especially strategically effective today for many developing countries. Buchanan again supports this idea for protectionism saying, “Had infant America followed free trade, our legendary industrial expansion would never have taken place, and America would never have dominated the twentieth century” (Freshman 391). The key to national power is manufacturing. When industries are in developmental stages of production, their prices may be higher due to additional costs for initial investment. Protectionism will give these firms an equal field instead of trying to compete with already developed companies. Soon the infant industries will be able to raise their productivity rate so they can lower their prices but they must have protection until they can get off the ground. On the other hand, this case cannot always be used to support protectionism. Adam Smith argued that, although this case is the only valid argument for tariffs, a more efficient way to take care of this problem is through government subsidies. This way the infant industries will be put on a level trading field with large foreign companies and will still allow free trade to flourish in the global economy.

One final argument to support protectionism is it can save American jobs. Whenever a cutback in production for an industry is made, some workers must lose their job and unemployment increases. According to the general supply and demand theory of economics, cutbacks in production occur when the product made is not in as great of demand. If consumers buy foreign goods because their prices are lower to due government subsidies, American companies wil