Similar to the early infant industry argument, strategic trade theory has emerged recently, which supports protecting and supporting certain industries, which are expected to get a net gain in the long-run, and enables them to exploit a comparative advantage in order to compete with large monopolistic companies overseas efficiently (Slomm and Stotcliffe, 2004: 516). It seems to be beneficial either for maximising national income or preventing from establishing a foreign-based monopoly (Lipsey and Chrystal, 2004: 616). European Airbus Consortium, whose share of global production of commercial aircraft has risen to 57 percent, can be seen as an application of strategic trade theory (McAleese, 2004: 442). In 1970, Airbus has received 28 billion dollars approximately from state aid since its establishment (ibid.: 442). This intervention seems to be successful. In 2002, Airbus’s turnover was 19.4 billion euros and its skills and technology development, tend to spill over into other industries. Besides, it has successfully prevented Boeing and McDonnell Douglas from the establishment of monopoly on aircraft market (Slomm and Stotcliffe, 2004: 517). However, opponents argue that strategic trade policy is a policy which just tries to benefit oneself rather than co-operating with neighbours to share mutually beneficial gains from trade (Lipsey and Chrystal, 2004: 618).
Another main argument of protectionism is job crises. It argues that free trade will lead to an intense competition and thus, many enterprises had to cut the employees to balance their decreasing profits. For example, tens of thousands of textile workers in the U.S. had lost their jobs because of the international trade in textiles (Begg, et al. 2003: 474). Though, according to Mankiw’s theory (2004: 189), this temporary job shock would be less influential when unemployed workers move from one inferior section to those industries which has a comparative advantage, it seems to take a long time and workers who lost jobs do not have years of experiences and acquired skills in certain industries to which they may be transferred (Begg, et al. 2003: 474). Those residual labour forces could not be transferred to other industries immediately, thus leading to several social complaints and dissatisfaction. However, it has been argued that the losses of protectionism definitely exceed the gains. One study estimated that U.S. customers had to pay 42,000 dollars annually for each textile job which was reserved by import quotas, a sum of which dramatically exceeded the average salaries of a textile worker (Blinder, 2002).
The last argument of protectionism is unfair competition argument. The people who hold this notion consider that the world marketplace is not as perfect as the economists describe who support free trade completely (Mankiw, 2004: 190). In fact, unfair protection, which is caused by initial trade protection and restriction, has widely penetrated into every steps of multinational trade (ibid.). Therefore, it is suggested that those nations should adopt several anti-protection trade policies to eliminate those initial unfair competition (ibid.). A well known example of those polices is anti-dumping act, which definitely prevent the action of trade partners who want to dump their cheap goods at the price below the marginal production cost in order to occupy the domestic marketplace in long-run (Begg, et al., 2003: 473). However, those protections, such as tariffs and import quotas, will cause several unnecessary losses which could have been avoided.
To conclude, free trade is definite beneficial that will make the economic pie to be bigger however, also creates the winners and losers. The fact is that the world economic framework is not as perfect as the economists consider and the technological gap between developing nations and developed nations is still wide. The responsibility of governments, therefore, is to decrease the technological and intelligential gaps and to maximising the national income by adopting several protections which tend to either protect their infant industries or provide a strategic approach to achieve their targets. Besides, governments should pay more attention to social effects caused by free trade rather than economic benefits. Several social problems, such as job crises, would strongly influence the stability of society. Although protectionism tends to cause unnecessary losses which could have been avoided, the governments, to some extent, always tend to balance the economic losses against their own interests, such as political and social benefits. According above stated, there is undoubted that governments attempt to increase protection for their own industries and farms.
References:
Bannock, G. and Baxter, R. and Daivs, E. (2003) The Penguin Dictionary of Economics. London: Penguin Group. p.314
Begg, D. and Fisher, S. and Dornbusch, R. (2003) Economics: Seventh Edition. London: McGraw-Hill Education. pp. 471-475
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