US vs China: Protectionism vs Free Trade - Essay Sample

Introduction

The ongoing economic battle between the United States and China is a full-fledged example of protectionism versus free trade. The United States believes that China trades unfairly and have taken advantage of their open market. China is dumping unreasonably priced goods into the United States because of its access to low-cost labor at home. Consequently, stiff tariffs have been imposed on China as an act of protectionism. Basically, such a move safeguards' United States' industries by restricting international foreign trade. Likewise, it can affect the economy in some ways. This essay will compare trade protectionism and free trade to highlight the benefits and drawbacks of each one of them.

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It is essential to understand that the concepts of protectionism and free trade are regional issues. Protectionism is a manufacturing philosophy developed by countries to hamper imports into their territories. Rugman and Alain, while comparing the two trade forms, states that domestic markets become competitive when other nations can export their goods freely and exploit the advantages of a foreign country. Governments will try to protect particular industries or companies not yet capable of competing in the global market (8). Standard measures of protectionism include increased quotas and tariffs or completely barring the importation of goods. Rugman and Alain further provide that free trade is a complete opposite of protectionism and thus its policy of no trade barriers or commerce without governmental interference (10). Several nations or regions are in free trade agreements with each other that includes the movement of goods without tariffs or taxation and access to markets and information. Also, they agree to no implementation of subsidies on exports and imports from each country.

Both protectionism and free trade have their advantages. Skousen while referencing John Maynard Keynes asserts that privatization of markets leads to unhealthy situations with inefficient results; hence, government influence is imperative (88). The perceived benefit of protectionism is its ability to improve a country's trade terms by imposing barriers. Besides, it helps emerging sections of the economy or younger industries to grow without threat from stronger companies from other nations. Many nations view protectionism as a move that enables them to secure employment, income, and prevent the relocation of companies to cheaper countries. Similarly, according to Van Kooten, the benefits of free trade is that it offers companies a cost advantage, based on efficient use of resources and better technology. A company in a particular country can specialize in the production of specific items (335). Assuming this specialization occurs with every nation, then a situation of ideal allocation of goods will occur globally. In this way, there would be more working places in an export-driven economy. Also, free trade offers the advantage of reduced prices in the international market and transfer on technology that leads to innovations.

However, each of the trade forms has its disadvantages as well. Trade protectionism is linked with a long-term shortcoming of weakening an industry. There is a lack of innovation in a sector of the economy that is not competitive. Ultimately, the domestic product will deteriorate in quality and be costly than what is produced abroad. Also, closing borders for trade causes retaliation from other nations affecting the economy - for example, the Smoot-Hawley Tariffs of the 1930s imposed by the United States' Congress had disastrous effects, such as the 5% increase in the cost of imported goods, limitation of U.S exports, and the shrinking of global trade (Siles-Brugge 540). For free trade, the most common disadvantage is its effects of increasing trade deficits in some countries to potentially harmful levels. For instance, America registers a trade deficit of about $800 billion with all its trade partners (Eaton, Samuel and Brent 35). Every amount in trade deficit is reflective of what the nation has lost and can be disastrous to the economy of the country.

Conclusion

In summary, it is difficult to decide which one among the two forms of trade is the best. Advocates argue that trade protectionism can protect the economy of a nation. On the other hand, the belief is that free trade strengthens the world economy. Each of the trade forms has both displayed harmful effects on various nations. The arguments are endless, and what stands out is that the debates on these forms of business are not ending anytime soon.

Works Cited

Eaton, Jonathan, et al. "Trade and the global recession." American Economic Review 106.11 (2016): 34-38.

Rugman, Alan and Verbeke Alain. Global corporate strategy and trade policy. Routledge, 2017.

Siles-Brugge, Gabriel. "Explaining the resilience of free trade: The Smoot-Hawley myth and the crisis." Review of International Political Economy 21.3 (2014): 535-574.

Skousen, Mark. The Big Three in Economics: Adam Smith, Karl Marx, and John Maynard Keynes: Adam Smith, Karl Marx, and John Maynard Keynes. Routledge, 2015.

Van Kooten, G. Cornelis. "Benefits and costs of impeding free trade: Revisiting British Columbia's restrictions on log exports." Journal of forest economics 20.4 (2014): 333-347.