Question

" In your opinion, what are the most significant economic effects (both positive and negative) of protectionist policies? Do you believe it is wise for the United States to enact protectionist policies? Why or why not?

Answer 1

We know that protectionism is the trade policy that restricts international trade to protect domestic industries from foreign competition. The primary protection policy of the government includes import tariff, quota, subsidies and state intervention. It argued that trade protection harms the economy. From the beginning of the economic understanding, free trade is the most significant trade policy of the government that provides gains from trade and making profits. The protectionism will lead to minimizing the free trade between the countries. Many of the world countries believe that the manufacturing of goods is better for domestic industries than in foreign settings. To control trade the government use two kinds of protection policies, tariff and non-tariff measures. The argument for protectionism includes,

It keeps the domestic economy rolling itself. It means that the local industries protected from foreign competition and the competitiveness of the industry will improve.

The domestic industry has less competition in the export market.

The infant industry argument like new and upcoming industries develop well.

It prevents dumping activities.

The argument against the protectionism includes,

The consumer needs to pay high to get goods and services in the market.

The business also suffers

Protectionism limits the access of foreign goods to domestic consumers.

The retaliation problem of domestic industries.

The protectionism policy is most prominent in the US. The primary consequences of a trade war are that countries are imposing the import tariff and are involved with tariff would losses their economic welfare and also experience collateral damage. The higher the tariff, it losses the total output in the economy and it would become permanent. The higher the prices that would destroy specialization in the new products and world productivity. When we are talking about the trade war between the US and China, it concluded that no winners in the war, when a country facing an import tariff will experience a decline in real export and GDP. The other trading partners also affected in the sense that weaker demand for their exported commodity. It generally happens through the supply chain or the more uncertain global demand for the product. Under the protectionist environment, the world trade suffers a lot; that is, multinational companies try hard to compete with the market. Both the US and China suffers from this trade war; there is a most significant decline in the import of goods and services. The significant impact on the war is that the real fixed investment is restrained that reflects the decline in export, the downward trend of equity prices and a drastic reduction in foreign domestic investment in these two countries.