Protectionism: Logic and Illogic

Countries
Countries use
use protectionist
protectionist measures
measures to
to shield
shield aa country’s
country’s markets
markets from
from intrusion
intrusion
by
by foreign
foreign competition
competition and
and imports
imports or
or the
the actions
actions ofof aa government
government toto help
help its
its
country's trade or industry by taxing goods bought from other countries
country's trade or industry by taxing goods bought from other countries

Arguments
Arguments for
for Protectionism
Protectionism include:
include:

1.
1. Maintain
Maintain employment
employment and and reduce
reduce unemployment.
unemployment.
2.
2. Increase
Increase of
of business
business size, size, and
and
3.
3. Retaliation
Retaliation and
and bargaining.
bargaining.
4.
4. Protection
Protection of
of the
the home
home market.
market.
5.
5. Need
Need to
to keep
keep money
money at at home.
home.
6.
6. Encouragement
Encouragement of of capital
capital accumulation.
accumulation.
7.
7. Maintenance
Maintenance of of the
the standard
standard of of living
living and
and real
real wages.
wages.
8.
8. Conservation
Conservation of of natural
natural resources.
resources.
9.
9. Protection
Protection of
of an
an infant
infant industry
industry
10.
10.Industrialization
Industrialization of of aa low-wage
low-wage nation
nation
11.
11.National
National defense
defense
 Trade Barriers
- To encourage development of domestic
industry and protect existing industry,
governments may establish such barriers
to trade.
- Meaning – Barriers are imposed against
importers and against foreign businesses.
- While the motto for such barriers may be
economic or political, they are encouraged
by local industry.
 Kinds of Trade Barriers
• Tariffs
Non-Tariff Barriers
• Quotas
• Voluntary Export Restraints
• Boycotts and Embargoes
• Monetary Barriers
• Standards
• Antidumping penalties
 Tariffs
• A tariff, simply defined as a tax imposed by a
government on goods entering at its borders.
• Tariffs may be used to revenue-generating taxes
or
• To discourage the importation of goods, or
• For both reasons.
• In addition, tariffs are arbitrary, discriminatory
and require constant administration and
supervision.
• They often are used as reprisals against
protectionist moves of trading parteners.
 The Impact of Tariff (Tax) Barriers
Tariff
Tariff Barriers
Barriers tend
tend toto Increase:
Increase:
1.
1. Inflationary
Inflationary pressures
pressures
2.
2. Special
Special interests’
interests’ privileges
privileges
3.
3. Government
Government control
control andand political
political considerations
considerations in
in
economic
economic matters
matters
4.
4. The
The number
number of of tariffs
tariffs they
they beget
beget via
via reciprocity
reciprocity

Tariff
Tariff Barriers
Barriers tend
tend toto Weaken:
Weaken:
1.
1. Balance-of-payments
Balance-of-payments positions
positions
2.
2. Supply-and-demand
Supply-and-demand patterns
patterns
3.
3. International
International relations
relations (they
(they can
can start
start trade
trade wars)
wars)

Tariff
Tariff Barriers
Barriers tend
tend to
to Restrict:
Restrict:
1.
1. Manufacturer’
Manufacturer’ supply
supply sources
sources
2.
2. Choices
Choices available
available to
to consumers
consumers
3.
3. Competition
Competition
 Six Types of Non-Tariff Barriers

(1)
(1) Specific
Specific Limitations
Limitations on on Trade:
Trade:
1.
1. Quotas
Quotas
2.
2. Import
Import Licensing
Licensing requirements
requirements
3.
3. Proportion
Proportion restrictions
restrictions of
of foreign
foreign to
to
domestic
domestic goods
goods (local
(local content
content requirements)
requirements)
4.
4. Minimum
Minimum import
import price
price limits
limits
5.
5. Embargoes
Embargoes

(2)
(2) Customs
Customs andand Administrative
Administrative Entry
Entry Procedures:
Procedures:
1.
1. Valuation
Valuation systems
systems
2.
2. Antidumping
Antidumping practices
practices
3.
3. Tariff
Tariff classifications
classifications
4.
4. Documentation
Documentation requirements
requirements
5.
5. Fees
Fees
 Six Types of Non-Tariff Barriers

(3)
(3) Standards:
Standards:
1.
1. Standard
Standard disparities
disparities
2.
2. Intergovernmental
Intergovernmental acceptances
acceptances of
of testing
testing
methods
methods and
and standards
standards
3.
3. Packaging,
Packaging, labeling,
labeling, and
and marking
marking

(4)
(4) Government
Government Participation
Participation in
in Trade:
Trade:
1.
1. Government
Government procurement
procurement policies
policies
2.
2. Export
Export subsidies
subsidies
3.
3. Countervailing
Countervailing duties
duties
4.
4. Domestic
Domestic assistance
assistance programs
programs
 Six Types of Non-Tariff Barriers
(5)
(5) Charges
Charges on on imports:
imports:
1.
1. Prior
Prior import
import deposit
deposit subsidies
subsidies
2.
2. Administrative
Administrative feesfees
3.
3. Special
Special supplementary
supplementary duties
duties
4.
4. Import
Import credit
credit discriminations
discriminations
5.
5. Variable
Variable levies
levies
6.
6. Border
Border taxes
taxes

(6)
(6) Others:
Others:
1.
1. Voluntary
Voluntary export
export restraints
restraints
2.
2. Orderly
Orderly marketing
marketing agreements
agreements
 Six Types of Non-Tariff Barriers
Quotas:
• A quota is a specific unit or dollar limit applied to
a particular type of good.
• UK limits imported television sets, Germans has
established quotas on Japanese ball bearings,
Italy restricts Japanese motorcycles, and the
USA has quotas on sugar, textiles, peanuts etc.,
• Quotas put an absolute restriction on the
quantity of a specific item that can be imported
• Like tariffs, quotas tend to increase prices.
 Six Types of Non-Tariff Barriers
Voluntary Export Restraints:
o VER is an arrangement between the importing
country and the exporting country for a
restriction on the volume of exports.
o Japan has a VER on automobiles to the USA;
that is, Japan has agreed to export a fixed
number of automobiles annually.
o A VER is called voluntary because the exporting
country sets the limits; however, it is generally
imposed under the threat of stiffer quotas and
tariffs being set by the importing country if a
VER is not established.
 Six Types of Non-Tariff Barriers
Boycotts:
 A government boycott is an absolute
restriction against the purchase and
importation of certain goods and/or
services from other countries.
 This restriction can even include travel
bans, like the one currently in place for
Chinese tourists; the Beijing government
refuses to designate Canada as an
approved tourism destination.
 Six Types of Non-Tariff Barriers
Embargoes:
 An embargo is a refusal to sell to a specific
country.
 A public boycott can be either formal or informal
and may be government sponsored or
sponsored by an industry.
 The USA uses boycotts and embargoes against
countries with which it has a dispute. For
example, Cuba and Iran still have sanctions
imposed by the USA and Nestle products were
boycotted by a citizens group.
 Six Types of Non-Tariff Barriers
Standards:
 The standards are sometimes used in an unduly
stringent or discriminating way to restrict trade.
 Different standards are one of the major
disagreements between the USA and Japan.
 The USA and other countries require some
products to contain a percentage of “local
content” to gain admission to their market.
 The NAFTA stipulates that all automobiles
coming from member countries must have at
least 62.5 percent North American content to
deter foreign car makers from using one
member nation as the back door to another.
 Six Types of Non-Tariff Barriers
Antidumping Penalties:
 Antidumping laws that have emerged as a way of
keeping foreign goods out of a market.
 Antidumping laws were designed to prevent foreign
producers from “predatory pricing” a practice whereby a
foreign producer intentionally sells its products in the
USA for less than cost of production to undermine the
competition and take control of the market.
 This barrier was intended as a kind of antitrust law for
international trade.
 Violators are assessed “antidumping” duties for selling
below cost or assessed countervailing duties to prevent
the use of foreign government subsidies.
 Monetary Barriers
In
In addition
addition to
to the
the Six
Six Types
Types of
of Non-Tariff
Non-Tariff Barriers,
Barriers, monetary
monetary barriers
barriers are
are
also
also used
used by
by countries
countries

Three
Three types
types of
of monetary
monetary barriers
barriers include:
include:

1.
1. Blocked
Blocked currency:
currency: Blockage
Blockage isis accomplished
accomplished by by refusing
refusing
to
to allow
allow importers
importers to
to exchange
exchange itsits national
national currency
currency for
for the
the
sellers’
sellers’ currency.
currency.
2.
2. Differential
Differential exchange
exchange rates:
rates: It
It encourages
encourages the the
importation
importation ofof goods
goods thethe government
government deems
deems desirable
desirable andand
discourages
discourages importation
importation of of goods
goods the
the government
government does does notnot
want
want byby adjusting
adjusting the
the exchange
exchange rate.
rate. The
The exchange
exchange rate
rate
for
for importation
importation of
of aa desirable
desirable product
product isis favorable
favorable and
and vice-
vice-
versa
versa
3.
3. Government
Government approval:
approval: In In countries
countries where
where there
there is
is aa
severe
severe shortage
shortage of
of foreign
foreign exchange,
exchange, an an exchange
exchange permit
permit
to
to import
import foreign
foreign goods
goods is is required
required from
from thethe government
government
 The Omnibus Trade and
Competitiveness Act (OTCA) 1988
1. Many countries are allowed to trade freely with the
United States but do not grant equal access to U.S.
products in their countries.
2. To ease trade restrictions, the OTCA focused on
correcting perceived injustice in trade practices.
3. It dealt with trade deficits, protectionism, and the
overall fairness of our trading partners.

The
The bill
bill covers
covers three
three areas
areas for
for improving
improving
U.S.
U.S. trade:
trade:
1.
1. market
market access,
access,
2.
2. export
export expansion,
expansion, and
and
3.
3. import
import relief
relief
 General Agreement on Tariffs
and Trade (GATT)

1. GATT created as an agency to serve as watchdog over world

trade and provide a process to reduce tariffs
2. GATT also provided a mechanism to resolve trade disputes
bilaterally

GATT
GATT covers
covers three
three basic
basic areas:
areas:
1.
1. trade
trade shall
shall be
be conducted
conducted on on aa nondiscriminatory
nondiscriminatory basis;
basis;
2.
2. protection
protection shall
shall be
be afforded
afforded domestic
domestic industries
industries
through
through customs
customs tariffs,
tariffs, not
not through
through such
such commercial
commercial
measures
measures as as import
import quotas;
quotas; andand
3.
3. consultation
consultation shall
shall be
be the
the primary
primary method
method used
used to
to solve
solve
global
global trade
trade problems.
problems.

3. GATT now replaced by the World Trade Organization

 World Trade Organization (WTO)

Unlike
Unlike GATT,
GATT, isis an
an institution,
institution, not
not an
an agreement
agreement

1. It sets many rules governing trade between its 132

members

2. WTO provides a panel of experts to hear and rule on

trade disputes between members, and, unlike GATT,
issues binding decisions
 The International Monetary Fund (IMF)

1. IMF was created to assist nations in becoming and remaining

economically viable
2. It assists countries that seek capital for economic development
and restructuring
3. IMF loans come with stipulations that borrowing countries slash
spending and impose controls to curb inflation
4. It helps maintain stability in the world financial markets

Objectives
Objectives ofof the
the IMF
IMF include:
include:
1.
1. stabilization
stabilization ofof foreign
foreign exchange
exchange rates
rates
2.
2. establish
establish convertible
convertible currencies
currencies to
to
facilitate
facilitate international
international trade
trade
3.
3. lend
lend money
money to to members
members inin financial
financial
trouble
trouble
 World Bank Group (WBG)
The
The goal
goal of
of WBG
WBG isis to
to reduce
reduce poverty
poverty and
and the
the improvement
improvement ofof
living
living standards
standards by
by promoting
promoting sustainable
sustainable growth
growth and
and investment
investment
in
in people.
people.

The
The functions
functions of
of the
the WBG
WBG include:
include:
1. lending money to countries to finance development projects in
education, health, and infrastructure;
2. providing assistance for projects to the poorest developing countries;
3. lending directly to the private sector in developing countries with
long-term loans, equity investments, and other financial assistance;
4. provide investors with investment guarantees against
“noncommercial risk,” so developing countries will attract FDI; and
5. provide conciliation and arbitration of disputes between governments
and foreign investors
 Protests Against Global Institutions

In
In 1999
1999 “anti-capitalist
“anti-capitalist protestors”
protestors” complained
complained against
against the
the WTO,
WTO, and
and IMF,
IMF,
over
over the
the unintended
unintended consequences
consequences of of globalization
globalization that
that include:
include:

1. environmental concerns
2. worker exploitation and domestic job losses
3. cultural extinction
4. higher oil prices, and
5. diminished sovereignty of nations