Priyanka's Econ Blog

Globalization Debate October 14, 2010

Filed under: Section 4 — priyanka821 @ 7:14 am


Five Things I learned today:

1) The Indian workforce is the most powerful of the Asian Work force in the United States.

2) United States as well as the United Kingdom used protectionist measures themselves in their initial steps to becoming a world power.

3) Globalization can lead to terrorism due to increased international interactions.

4) African nations are at the biggest loss due to the exploitation of labor and resources. They are also affected by the weather change which does not allow their crops to grow.

5) Globalization has allowed people to share ideas from around the world. One of my favorite clothing lines (Forever 21) would not be available in Japan without globalization and nor would my Apple laptop.


Free Trade Versus Protectionism October 4, 2010

Filed under: Section 4 — priyanka821 @ 2:11 am

Protectionism happens when countries adopt policies to protect their domestic industries from foreign competition. The main protectionist policies are tariffs (taxes on imported goods), quotas, embargos and voluntary export restraints.

Free trade is international trade free from any restrictions like tariffs, quotas or other protection.

There are many arguments for and against protectionism. One of them is to protect domestic employment. This is seen as the European Union subsidizes European farmers even though they are inefficient, which deters the world economy but protects members of the EU. Another reason nations may use protectionism is to make balances sustain equilibrium. This means that protectionism will allow countries to increase domestic output as demand for imports (with tariffs) will decrease. Furthermore, it protects infant industries because the comparative advantage rises with protectionism. This means that these businesses will be able to enter new markets as the company does not have to face severe competition at its beginning stages. Similarly, protectionism allows a developing country to diversify. Many developing nations are dependent on the exports of their primary commodities which means they are vulnerable to international commodity prices. If a government wants to diversify and develop new export revenue, they have to protect the industries from the volatile international competition. Furthermore, protectionism also increases government revenue when it is applied as a tariff. Besides reducing demand for imported goods, it increases government revenue just like any other tax. Lastly, protectionism for a product can be used as a strategic argument for a country. It is justified on the pretense that it keeps industries that are a vital part of the economy, (for social, political, or military reasons), alive.

There are also reasons against protectionism. If a country advocates reduction in imports, it will result an a decrease in exports for the other country and cause a multiplied effect. This may even reduce demand for exports for the country practicing protectionism. It can hinder world output. This is clearly seen in the economies of China and the USA which are interlocked and if a trade war were to occur between them the entire world would suffer. Furthermore, protectionism can cause retaliation. This will mean that any success in protecting against imports will lead to a fall in exports. Also, tariffs tend to lead to a social cost. Some benefits from the reduced imports are passed to domestic firms in the form of higher prices and the government in the form of revenue but there is also a welfare loss. Another strong argument against protectionism is that it leads to an inefficient allocation of resources. There will be no incentive for industries to be innovative and become more inefficient as they will rely on government subsidies. Furthermore, firms operating at higher costs will not be able to achieve export competitiveness; resources will not be allocated to maximize efficiency. Lastly, protectionist measures are bureaucratic to enforce which means that it will reduce variety and choice for consumers and perhaps lead to corruption and other administrative costs which will obviously not be beneficial for the economy.

After evaluating the arguments, I am still unsure of whether I am for free trade or protectionism and to which extent I would be for either.


Types of Protectionsim

Filed under: Section 4 — priyanka821 @ 1:44 am
Tariff Tariffs are taxes on goods imported into a country. They are a form of protectionism and are often used by governments to try to reduce the level of imports into a country. China imposes tariffs on U.S. poultry
Quota A quota is a limit on the quantity of goods that can be imported into a country. Quotas are a form of protectionist policy.

European Union puts Quotas on Chinese textiles
Subsidy A subsidy is a payment made to firms or consumers designed to encourage an increase in output. A subsidy will shift the supply curve to the right and therefore lower the equilibrium price in a market. European Union’s Subsidies for Farmers Affects African Farmers