Trade Protectionism And Worldwide Economic Contraction - Case Study Example

Trade Protectionism And Worldwide Economic Contraction Introduction “Laws aimed at insulating the state from interstate competition involve what the Court has called simple Economic Protectionism” (May & Ides 350). However, under the dormant Commerce Clause such laws are invalid. The Economic Clause prevents a state from shielding its people from the economic consequences of free trade among the states. This is because alleged protectionist laws involve discrimination against interstate commerce. A finding of economic protectionism by the courts has fatal consequences for the industry, the government, the employees and other stakeholders, hence courts often hesitate to conclude that a statute is tainted by the evils of protectionism. Economic protectionist laws are struck down on the basis that the state has not used a more equitable means of achieving its goal. Thesis Statement: The purpose of this paper is to investigate economic protectionism, explain the rationale for governments implementing protectionist policies and evaluate whether these policies were successful or otherwise. Economic Protectionism: Its Rationale and Extent of Success An economic protectionist law is one that is enacted to shield locals from out-of-state competition. For example, when the purpose of a law is to shield Alaska’s infant timber processing industry from the effects of interstate and foreign competition, it is deemed as invalid. Similarly, a state’s labeling law in the apple growing industry would be considered to be economic protectionist if it were meant to prevent apple growers in other states from selling their fruits in the former state. Thus, where economic protectionism is a law’s ultimate goal, the measure can be held to be unfounded. However, if the apple growing state argues that requiring the use of a specific grade is a reasonable method to protect consumers against fraud and deception, the court would most likely accept this argument (May & Ides 350). On the other hand, ecomomic protectionism is also considered to be damaging if it is merely a means, a stepping-stone, or an intermediate goal towards the attainment of a legitimate end. For example, “a genuine quarantine law that bans the importation of diseased crops or animals is not economic protectionism if it was adopted for health reasons” (May & Ides 352) even though it has the incidental effect of shielding local sellers from competion from other states. Although quarantine laws are not invalid in themselves, they may be invalidated if they fail to meet one of the other requirements of the dominant Commerce Clause analysis. The Argument Against Economic Protectionism Support for continued trade liberalization may be declining, as the results from recent polls and political rhetoric suggest. This development is a matter of concern. A shift away from comparatively open global trading system that is currently in place would enforce substantial economic losses to most countries. International trade raises the standard of living in all countries. Consumer well-being is increased by lower prices on imported products and greater variety of products available in the market. Further, production efficiency is improved by specialization based on comparative advantage and increased competition from foreign businesses, thereby raising the country’s gross domestic product (GDP). Firms also get access to foreign capital goods that generally contain new technologies; this further improves productivity (Kroll 9-10). In relation to the effect on jobs and wages impacted by international trade, the evidence indicates that trade can lead to the displacement of workers in industries that compete with imports. On the other hand, this adverse outcome is relatively small in comparison to overall increase in employment opportunities. In the United States although displaced workers face adjustment costs, overall the country “has experienced robust total employment growth in the presence of expanded trade” (Kroll 10). Additionally, research reveals that international trade has a comparatively low effect on wages. Greater wage differences have been brought about by skill-based technology change than by international trade. Although international trade drives significant changes in the economy, the costs of international trade restrictions on the basis of economic protectionism are higher than the limited benefits these restrictions produce to import-competing industries. According to Humpage (p.218), New Zealand like Australia had a long history of centralised award bargaining that contributed to work being considered as a social right. From the 1930s, governments also ensured decent work through other methods based on economic protectionism including agricultural subsidies and import controls. Rapid financial and trade deregulation from 1984, and transformation of the labour market from 1991 “offered employees greater flexibility but reduced employee security at a time of high unemployment and benefit cuts” (Humpage 218) The Argument for Enhancing Countries’ Own Economies In a booming economy, foreign imports of goods and services are beneficial in raising living standards and promoting spending without inflation. On the other hand, in an economic downturn, the politicians tend to become protectionist and economic isolationists by putting up trade barriers. Under such circumstances, foreign competition becomes a convenient scapegoat for the crisis, although the reasons for the crisis may be purely domestic in nature. With the economic downturn, every country was adversely affected, a severe recession turning into a worldwide economic depression. This is based on the fact that trade protectionism in the modern world is the equivalent of harming one’s own self; and it leads predominantly to a spread of poverty and economic dislocations (Tremblay, 2009). Most modern economies are interrelated, and as compared to the economic depression of the 1930s, today economic integration between countries is much more advanced and wide-spread. The current global financial crisis is causing a reduction in world trade, a lowering in commercial bank trade credits and a drop in private investments. “The decline will particularly hurt large export-led economies such as Mexico, Germany and Japan” (Tremblay, 2009). Economic protectionism is an important issue also for Canada, the United States’ most important trade partner. Conclusion This paper has highlighted economic protectionism, explained the rationale for governments implementing protectionist policies and assessed the success of these policies. The evidence indicates that economic protectionism causes more adverse outcomes than benefits. Further, it is essential to learn lessons from the past, and governments should resist exporting their economic problems abroad. They should work instead to enhance their own countries’ economies without resorting to protectionist interventions. Tremblay (2009) supports this view, and states that “to avoid sending the world economy into a self-reinforcing contraction that would hurt everyone”. Works Cited Humpage, Louise. Radical change or more of the same? Public attitudes towards social Citizenship in New Zealand since neoliberal reform. Australian Journal of Social Issues, 43.2 (2008): pp.215-223. Kroll, Robert. Trade, protectionism and the U.S. economy. CATO Institute. Retrieved on 23rd November, 2011 from: www.cato.org/pubs/tbp/tbp-028.pdf May, Christopher N. & Ides, Allan. Constitutional law national power and federalism: Examples and explanations. New York: Aspen Publishers. (2007). Tremblay, Rogrigue. Trade protectionism and worldwide economic contraction. Centre for research on globalization. Retrieved on 23rd November, 2011 from: http://www.globalresearch.ca/index.php?context=va&aid=13760 Read More