PREVALENCE OF PROTECTIONISM

Prevalence Of Protectionism

Prevalence Of Protectionism

Introduction

The main focus of the report is based on the concept of protectionism and its widespread prevalence in many countries of the world. Despite, the fact that most theories of international trade conclude that free trade improves social welfare. Historically, tariffs have served two purposes: as a means of protection and as a source of state revenue. NTBs include anti-dumping measures protection against countries that allow firms to sell goods more cheaply in international markets than at home. Quarantine regulations measures restrict the importation of potentially diseased organic goods and industrial assistance policies, such as discriminatory government procurement regulations, subsidies, bounties and various other export incentives. Complex customs procedures measure the passage of goods and voluntary export restraints, and subsidies for domestic producers (Krugman 2001, p. 19).

International Prevalence Of Protectionism

Government policy and domestic politics shape international trade. The most important impacts involve first, policies to restrict trade to protect domestic businesses or foreign companies producing within the domestic market and second, policies to favour domestic industries through interventionist industry policies. There are various forms of protectionism, which can be divided into tariff and non-tariff barriers (NTBs) (World Trade Organization 2004, p. 167).

Liberal economists (like Gordon Tullock, Israel Kirzner, Friedrich A. von Hayek etc.) see tariffs as a preferable form of protection because their impact is transparent-importers know exactly what they have to pay-in addition to the product's cost-to bring a product into a country. Tariffs are preferred to quotas, which absolutely restrict imports above a predetermined level, and to other NTBs, whose effects are often unclear. International trade negotiations conducted through the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT), have involved attempts to get countries to shift their forms of protection to tariffs-a process known as 'tariffication'. Much progress has been made since World War II to lower tariffs. As tariffs have been reduced, however, NTBs have become more important (Grossman 2003, p. 132).

Most economists (James Buchanan, Ronald Harry Coase & Milton Friedman) argue that freer trade is superior to protectionism. Many historians, however, point out that many of the most successful economies have been protectionist in the process of development-Great Britain, Germany, the USA and Japan. Despite the shift to global freer trade in the post-war period and in Australia since the 1980s (see Trade policy) political scientists highlight the continuing pressures for protection that all governments face and, as a consequence, the continuing variety of novel and not so novel forms of protection.

The Hawke and Keating Labour governments (1983-96) abandoned trade protectionism by significantly lowering tariffs in 1988 and 1991. As a result Australia shifted from being one of the most protected developed economies to one of the most open. Despite considerable public disquiet, the Howard government (1996) has consolidated this shift away from protectionism, although significant tariffs and industry support remain in the textiles, clothing, and footwear sector and the automotive sector.

Indeed, protectionists note that some of the UK's trading partners ...