INTERNATIONAL BUSINESS

International Business: Free Trade and Protectionism

International Business: Free Trade and Protectionism

Protectionism

Protectionism may be defined as “any policy that is intended to shield domestic industries from import competition” (Daly 2007). Some forms of protectionism are more obvious than others. Tariffs, which, at times, at least, have been used to raise revenue, are also protectionist because they raise the price of foreign goods and reduce price competition, which allows domestic producers to keep their prices higher than would be possible in the absence of the tariff. Indeed, those who advocate most modern tariffs do so in order to make it more difficult for foreign producers to sell their goods domestically. Various trade agreements, such as NAFTA and GATT, make some attempt to reduce tariffs, although they also have protectionist features.

Introduction

The value of free trade is a contentious issue with many prongs. There appear to be economic benefits in the short-term to most, and in the long-term, to all that participate, as well as disadvantages. However, the area in which free trade appears most valuable and virtuous is that of providing freedom of choice. Since no single individual can produce all the different goods they need to maintain their life and achieve happiness, (McKinley 2005) all individuals should have the freedom to acquire their needs by means of trade with others.

Protectionism

Whist the Bush administration pushes forward and attempts to gain US Congress approval for Trade Promotion Authority, also known as fast track, a number of US industries dig their heels in at the looming FTAA and international trade agreements.

Textile manufacturers are concerned about how anti-dumping regulations (which penalise countries that export for less than production costs) will be affected by FTAA. (Magee 2007) Decisions on these regulations will have a direct impact on them. Textiles and apparel industries have also expressed concern. China is able to flood the US market with their comparative advantage in the textile and clothing arena, leading to almost definite negative consequences on employment in the US sector of the market.

US Agriculture stands to be significantly affected. Whilst export commodities such as wheat, soybeans, corn, and cotton will increase for the US, there are negative implications the domestic distribution of sugar, peanuts and orange juice. Technology advocates of protectionism argue that the United States is losing its technological edge to countries like Japan, mainly as a result of the U.S. dedication to free trade. These advocates argue that foreign competition has forced many U.S. high-tech firms into bankruptcy or out of the business of producing certain goods.

Some manufacturers and opponents of free trade argue that cheaper labour in foreign countries forces American companies to move their operations overseas. They say that in the long run, America is being de-industrialised. Protectionists also believe that American manufacturing wages must be protected from foreign competition. (Sicilia 2000) There is the argument that foreign competition causes Americans to lose their jobs.

Tonelson concurs: "Five major American industries-automotive, textile, machine tool, semiconductor, and textile received significant relief from imports through intelligently structured trade ...