The current president of the US of North America has been cancelling bilateral and multilateral trade agreements in favor of a protectionist trade policy. This paper seeks to explain the consequences of this policy both in the mid- and long-run. This is achieved by analyzing both multilateral trade agreements and bilateral trade agreements.
Protectionism details the policy of protecting domestic industries from foreign competition via the imposition of tariffs, quotas as well as regulations on imports. Protectionism policy limits trade between the states, and bars foreign take-overs of local markets management and firms. Protectionist policy, in economics, protectionism is such a policy that restricts trade between states (countries) via such mechanisms as imposing tariffs on imports, restrictive quotas as well as a range of additional regulations by the government.
Trade protectionism defines the considered attempt to restrict imports/promote exports via the placement of obstacles to trade. Albeit the proponents of free-trade argument, and growing openness of trade, this policy remains extensively used as seen by Trump administration that is cancelling both bilateral and multilateral trade agreements. President Donald Trump’s protectionist policy would hit a range of regions both in the long- and short-run where it leads to a severe trade conflict. On a balance, trade protectionist policy is never good for the world economy, indeed not even for the United States, however, fiscal stimulus would dominate the United States economic growth and further might positively affect the global economy. Protectionist policy will as well lead to trade wars between the largest economy (the US) and the second largest economy (China) or some serious trade conflicts thereby affecting Asia, Europe, the southern hemisphere, everywhere.
The theory posits that free-trade makes all things inexpensive as well as enhances quality of goods, straight benefit each country. It builds from the idea that various economies have varying strengths for production. Such might be an inexpensive labor force, geography, technological expertise, and a seldom/erratic resources (Gereffi 62). The arguments hold that where every economy emphasized and subsequently specialized on whatever it can produce best/cheapest, it might produce healthier quality/cheaper goods. Such goods might then be traded between economies thereby making each consumer excited. It is identical principle to each one specializing in one career then trading items we need, instead of attempting to generate all products independently (Switzer and Daniel 56).
Free-trade already lifted the entire economies from poverty. Free trade can as well bring a range of income overseas and would propel business toward ceaseless investment, solid effort as well as invention thereby expanding their share of international market. It further relevant to the firms which don’t undertake exportation, but currently have to keep corresponding product prices low and high quality to edge out incoming competitors. Free-trade further reinforces the links amongst economies, enhances co-operation on economic basis and the argument stretches, making wars increasingly less probably-anyway, it is never an astute to attack the suppliers as well as consumers. This remained the fundamental rationale for European Economic Community establishment, the EU’s forerunner, shortly following WWII.
Among the alterations the US president is bringing to the US Trade Policy Management, the Trump has clearly stated that bilateral trade agreements are healthier than multinational/regional trade deals. For America’s trade partners, along with the developing economies, bilateralism emergence highlights 3 fundamental queries: 1st, how shall it alter dynamics for negotiation? 2nd, shall it permit for operative governance of international trade? 3rd, what is it saying regarding the general international trade system direction?
On every count, various worrying reasons are noted. Trump anchored his campaign on protectionism, and in one of Trump’s acts as president abandoned the TPP. After assuming power, Trump stressed that he has no opposition to all trade deals, and indeed advocates for novel deals, provided they are re-negotiated bilaterally. Trump has promised many trade deals based on a one-on-one basis and not as one large mash (Bolle 54).
The adoption of bilateral negotiations by Trump is informed by his comprehension of the international economy as the zero-sum skirmish. Thus, the core query in probing any given trade agreements is never about if it creates general economic benefits, rather how their gains are disseminated amongst the economies-that is receiving the largest pie’s slice. President Trump is worried that previously trade-negotiations, and specifically talks engaging many diverse economies, the United States negotiators have permitted other economies to gain at the expense of America (Parikh et al 65). Trump believes that one-one negotiations will see the United States have wider leverage thereby capable of capturing a large share of the benefits from deals.
However, it remains indistinct to date with which economies the US intends to sign novel trade agreements. Whereas Trump’s government initial efforts seem to be directed at United Kingdom alongside Japan, additional list of the US prospective targets range from Taiwan to Russia to Vietnam, whereas Economic Times of India quoted unidentified sources arguing the United States could provide a bilateral agreements to India. Albeit the global poorest economies are improbable to be forerunners, several emerging economies and developing economies could encounter the feasibility of initiating bilateral trade debates with the United States government (Irwin 53).
Trump’s interest in pursuit of novel trade deals on one side might indicate that he shall never confine to his protectionist instincts but on the side Trump’s government adoption of bilateralism assumes three risks for trade partner of the US both in the long- and short-run. 1st, a shift from the multilateral and regional fora to chastely bilateral agreements shall shift the dynamics for negotiations of the would-be trade partners. Donald surely trusts the United States can effectively utilize its authority to shape deals in its individual interests via bilateral arrangements. Whereas Trump plays down the United States enjoyed power in regional debates-for example, in real-world.
The American influence has been manifested in the final TPP text overpoweringly and probably overrates how best a deal Trump will obtain in one-one talks, developing economies need to be increasingly watchful regarding such a step. Multipart talks permit for coalitional haggling which can sometimes create imbalances in power. Furthermore, in the face of additional participants engaged in the negotiations there will be higher array of feasible results thereby creating openings for creative win-win situations; bilateral talks limit set of potential agreements.
Secondly, agreements on bilateral trade web shall do far less in the promotion of well-organized global integration instead of comparable multilateral/regional treaties. In contemporary world, bilateral relations don’t capture the manner in which international trade works in real life. Companies and factories don’t merely undertake the production locally and subsequently export the finished products to goods to an overseas economy; instead, firms partake in worldwide value-chains, whereby production stages remain divided crossways manifold economies (Irwin 68). Because PTA encompass rules-of-origin needs that restrain concessions on tariff to products significantly generated within a treaty members-to evade the transshipment problem- bilateral agreements are usually of slight assistance to worldwide value-chains, as import of factors of production is done from members outside the treaty.
Furthermore, trade deals remain significant never solely for tariffs reductions but further for assisting in the standards’ harmonization as well as regulations thereby easing the global commerce; standard establishment negotiation bilaterally, instead of regional or multilateral, degree remains ineffective/inefficient (Fidler 64). Companies shall find it expensively as well as puzzling to maintain track of several overlying trade regulations sets talked within diverse deals that possible of being at loggerheads with one another. A sequence of bilateral trade deals shall significantly portion global trade-governance thereby parting a hotchpotch of unfinished as well as disjointed rules of ill-designed for twenty-first century (Chandra 87).
Thirdly, and maybe most hazardously for developing economies, Trump’s strategy management to bilateralism might tilt the global trade-system in the troublesome directions. Prospective trade partners have to determine whether bilateral negotiations with the United States will eventually undermine the broader open trade systems. Policymakers and academics have long deliberated whether PTA were the eye-opener/barriers to development on liberalization of multilateral trade.
Here, its appears crystal clear that the US president doesn’t perceive bilateral trade contracts as the mechanism to back up the general sustenance for the open sturdy economic-order, rather than as an effort for carving up the plunders of a worldwide economy. Deserting multilateral and regional deals for the bilateral worldview might lead to the institutionalization of mercantilist strategy by Trump to the worldwide trade-system whereby economies are impenetrable in the zero-sum rivalry to win the huge shares of market instead of collaborating to enhance efficiency of economy. In the long-run, the rules, norms, as well as laws which govern trade relations shall erode (risk), alongside the WTO legitimacy and effectiveness. For all credible apprehensions as well as complaints developing economies might have regarding WTO, they will not probably to perform better under a slightly legalized, increasingly power-oriented trading systems of mercantilist.
In case Donald insist that the US government shall solely partake in bilateral trade talks, how might prospective treaty partners retort? Administration shall essentially weigh the gains of preferential admittance to the United States market against the prospective risks explicated overhead. Provided that United States is now a comparatively open-economy, the earlier might be retiring, whereas the latter might be unadorned. Economies that seek the promotion of economic liberalization might hence have to re-think regarding the initiation of bilateral agreements under the terms of Trump. In the course of increasing trade protectionism, the key precedence for economies dependent on worldwide economy must be conservation of global trade regime basic open structure. Such a goal will more probably be accomplished multilaterally or regionally (Grevi 69).
The protectionism is preferred to protect the sunrise-industries. The trade barriers can be utilized to defend sunrise-industries, also called the infant-industries like industries engaging novel technology. Such a safeguard will give US novel firms the opportunities for developing, growing and becoming competitive internationally in the long-run. The local industries’ protection might enable Trump to create a comparative edge in the long run. For instance, the US local companies might grow when sheltered from competitions hence gaining from the scale economies. As US’ companies expand, they might undertake investment in the human- and real-capital thereby developing novel skills/capabilities in the long-run. Once such skills and capabilities are developed in the United States, there will be less need for protectionist policy in the long run, and obstacles might be ultimately eliminated (Liu and Emanuel 43).
Trump also favors protectionism to as a means to safeguard the sunset-industries. One the end of scale, are the sunset-industries that Trump seeks to protect. These sunset industries are further called declining industries. They require some support by the US administration to allow them decline slowly in the long-run, and evade some adverse effects of such declines. For the United Kingdom for example, each generation throws-up its individual deteriorating industries like building of ships in year 1950s, production of car in 1970s as well as the steel production in the 1990s.
Protectionism is preferred to protect the strategic industries. Trump seeks such barriers to be erected for the protection of strategic industries like energy, steel, water, food and armaments in both long- and long run. The implied objective of the EU Common Agricultural Policy (CAP), for example, is to establish food-security for Europe via the protection of its agricultural industry.
The protectionist policy is also favored to as a safeguard to non-renewable capitals. These capitals like oil remain considered distinct instance whereby the standard free trade rules stay usually neglected. For economies that aim at oil exports dependence long-lasting into long-run like oil-rich economies restraining production in short-run via the quotas on production is one means used for resource conservation.
Trump also seeks protectionist policy to discourage unfair rivalry. Obstacles will be established to bar prejudicial rivalry like overseas companies’ dumping at the less than cost prices. Also, protectionist policy is also favored to save jobs. The protection of industries could, in the short term safeguard jobs, albeit in long-term it is improbable that such jobs will be protected forever. The protectionist policy will also help the environment. Certain economies might self-protect from trade to assist restrain injury to environment like that emerging from Carbon (IV) Oxide triggered by the surged production alongside transportation (Lewis 65).
Protectionist policy is also favored to limit over-specialization. Several economists have pointed towards the risks of over-specialization that could take place due to taking comparative advantage theory to its periphery. Retention of certain self-sufficiently is viewed as a workable economic approach provided the global slumps risks alongside over-dependence on global trade.
The US economy (major economy) in the world is swiftly stirring towards a protectionist position in its worldwide trade. The United States President, Donald, has enunciated of exiting TPP trade agreement signed by President Obama; abandoning/renegotiating the NAFTA trade agreement with Canada and Mexico; a thirty-five percent tax imposition on each car imported to the United States, and further intimidating China with a forty-five percentage point tax on its export to United States. Such might have significant ramification for the United States and additional global economies (Ojo 60).
A protectionist policy offers a partial merit to a native firm or industry against the global competition. Through mercantilism, the protectionism practice enjoys a lasting history in economics. This is point at which economies amplified their corresponding power by regulation that preferred their individual countries. It was dominating till the eighteenth century. However, with trade as a driver or engine of the growth of economy in nineteenth and twentieth centuries, free-trade for everyone was acknowledged as the foundation and objective/goal. The United States was a forerunner thereby creating agencies/bodies for the promotion as well as regulation of intercontinental trade including the GATT alongside its successor, WTO (Smith 58).
But kinds of protectionism are resilient in many states presently. EU subsides its individual agriculturalists as well as bans cheap agricultural goods’ importation from outdoor EU. The currency of China is insincerely low thus its exports remain cheaper; the lasting source of the China-the US friction. Japan assisted its local industries to develop via cheaper loans and imposition of weighty imports tariffs, prohibiting global investors from purchasing national firms and even initiating native campaigns to entice its populace to purchase Japanese goods in place of imported products. However, Japan became a bit fair by lifting most of its protectionist procedures, yet it solely lifted them when its goods had become extremely competitive already.
Protectionism can be a good idea. Some significant benefits to protectionism have been acknowledged. As early as the 1817, David Ricardo, founder of free trade theory, acknowledged that the outcome of free trade could well be to strengthen the states with the production advantage thereby leading to job losses for other people. In contexts whereby capital is mobile, and in absence of any barriers to the flow of citizens and investment, all production might well move to a single portion of the world-sound common?
Protection is further a good idea where the country is dealing with infant industries. It provides precious time to a firm to invest in the production facilities, personnel skills as well as gain the trust of the local consumers before the national market eventually opens to the international competitors in the long run (Ojo 39). The Japanese, Chinese and South Korean industrialization success is partially as a result of the fact that such economies shielded their infant industries, permitting them time to expand/grow and strengthen prior to having to compete with the West’s industries. Such an argument can as well as be extended to significant industries that are experiencing temporary challenges. The Obama government’s decision to bail out the United States car industry during the wake of year 2008 GFC followed this similar logic.
Another firm argument in favor of protectionist policy follows the logic of Game Theory. In case a country’s competitors are going to provide protection to their respective local industries anyway, then the economy has to provide protections to its local industries as well. For instance, in case the United States government is indirectly subsidizing the American Airplane Manufacturing Boeing, subsequently the European Union economies have a firm case of retaliating and considering subsidizing the European Company Airbus. In case EU members fail to subsidize, then Boeing shall ultimately gain a much greater market share and in turn, could propel Airbus out of the business in the long run.
The Trump’s gambler could eventually pay the US off. There is absolutely a case for protectionist in the US, but the proposed polices by Trump are a gamble. The apparent risk is that in case Trump’s policies are fully enacted, they will significantly enhance the US’ prices in the long run. For instance, the car manufacturer Ford has claimed that if it moved each phase of its production to the United States, subsequently some of its cars might be significantly be more expensive (Osabouhien et al. 76). Tariffs on the imports might imply that each good imported from Latin America, Asia and Europe might be increasingly expensive.
In the face of rising inflation, the US Central Bank, the Federal Reserve, could have to increase rates of interests more aggressively to restrain the damage. Exorbitant rates of interests shall subsequently reduce the purchasing power of American consumer as well as decrease inward investment. Additionally, it is likely that the United States trading partners will engage in retaliation in kind, to the detriment of the United States exports as well as the firms which manufacture such goods, additionally hurting the demand for the products of the US.
The core success lies in the expectation and confidence of the consumers and business. Where consumers believe that Trump’s polices remain geared toward the growth of economy, subsequently, as a self-fulfilling prophesy, they shall bring such growth with spending and investment. A feasible early indication of such sentiment might be the emergence of Dow Jones stock index after the election of Trump and the unprecedented increase in the economic optimism.
Where American firms believe that the novel policies shall boots the consumption of the US products, instead of imports, then they firms have incentives to invest in their corresponding production and hire domestically. Additionally, where Trump’s threat to impose large tariff is believed, various foreign companies that presently produce outdoor the US shall have an incentive of relocating within the US boarders (Bergsten et al. 76l). Levels of employment, spending, confidence and salaries by consumers and businesses shall rise additionally, provoking even increased inward investment.
The most probable way that protectionist policy of Trump might benefit the United States economy, albeit, is merely by posing a credible threat to the United States trading partners. Once such outrage against Trump protectionist threat subsidizes, many economies shall be excited to lift their individual kinds of protectionism against the American goods and sign trade agreements more favorable for the exports of the United States. American administration have long attempted to entice China to permit its currency to appreciate; presently Trump has an intention of arm-twisting China.
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Fidler, David. "President Trump, Trade Policy, and American Grand Strategy: From Common Advantage to Collective Carnage." (2017).
Gereffi, Gary. "Trump’s protectionism and its impact on global value chains." (2017).
Grevi, Giovanni. "Lost in transition? US foreign policy from Obama to Trump. EPC Discussion Paper, 2 December 2016." (2016).
Irwin, Douglas. "The False Promise of Protectionism: Why Trump's Trade Policy Could Backfire." Foreign Aff. 96 (2017): 45.
Irwin, Douglas. Free trade under fire. Princeton University Press, 2015.
Lewis, Joanna. "The rise of renewable energy protectionism: Emerging trade conflicts and implications for low carbon development." Global Environmental Politics (2014).
Liu, Xuepeng, and Emanuel Ornelas. "Free Trade Agreements and the Consolidation of Democrac." American Economic Journal: Macroeconomics 6.2 (2014): 29-70.
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Ojo, Marianne. "The Re Negotiable, Non Negotiable and the Hopefuls: Free Trade Agreements and Border Adjustment Tax Reforms." (2017).
Osabouhien, Uchenna et al. "Free trade, protectionism and the balance of trade: New empirical insights." Beggar-Thy-Poor-Neighbour: Crisis-Era Protectionism and Developing Countries (2014): 13-24.
Parikh, Kirit et al. Towards free trade in agriculture. Springer Science & Business Media, 2013.
Smith, Tony. "An open world takes a hit with Trump's close-door policies." (2017).
Switzer, Tom, and Daniel Hannan. "Life after brexit: Global Britain, free trade and the new protectionism." Policy: A Journal of Public Policy and Ideas 33.1 (2017): 26.
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