‘The current economic situation has divided opinion on the use of trade protectionism.’ Discuss

International trade has increased remarkably in the past decade especially after the global economic crunch that nearly brought most economies to their knees. The global financial crisis undermined economies growth and development processes and also hampered efforts that sought to broaden opportunities and improve the living standards of the populace. However, global trade has since steered away from the crisis. It has played a cardinal role in boosting sustainable growth of both developed and developing economies. Liberalization and free trade are important components necessary for enhanced global trading. Trade liberalization is believed to have been a central ingredient in the growth of developed economies. However, the aforementioned has been hampered by the ever evolving protectionism. Often a number of economies employ this antic to stay ahead or outdo its economic competitors (Van Marrewijk, Ottens & Schueller 2007). This essay seeks to dissect issues related to protectionism in the current global situation. In addition, it looks to outline various ways which protectionism has gagged economic growth and how it can be addressed

            Husted & Melvin (2007) observed that international review of protectionism and free trade policies are paramount in enhancing trading across borders. The problems related to the place of agriculture in global trade is a crucial problem that needs to be addressed swiftly as a way of laying economic foundation for developing economies. Most developing economies are experiencing distortions in the agriculture business due to gagging protectionist measures. The citizens of developing countries are languishing in abject poverty because of the rigidity of these protectionist measures employed by their governments and partners. Therefore, the disbandment of these rules and subsequent formulation of friendlier ones will foster not only the region food security but also improve the foreign receipts of economies. 

            According to Krrugman and Obstfeld (2009), the key challenge facing policy makers in the 21^st century is the formulation of sound policies that will fully address the issue of vicious cycle of poverty. A world where there is a wide gap between the rich states and the poor economies is unacceptable. The developing economies are often associated with these populations who survive on less than a dollar a day. Adam smith asserted that no society will be accredited as flourishing and happy while quite a number of its citizens are poor and very miserable. In the late 19^th and the entire 20^th century, quite a number of proposals and schemes that sought to foster economic growth and development of economies were advanced. Issues related to donor funding, population control and capital investment was captured by these papers. However, all these schemes have failed or in the verge of failing to spur growth and development or even unlock prosperity doors of developing economies. The failings of these schemes hyped the search of a singular measure that brings together the different ideas envisaged in the schemes although in an idealistic and rational manner. The singular measure that incorporated the entire scheme policies was seen as an ultimate guarantee of development in the developing economies. The amalgamation of policies in the past decade brought out a giant measure internationally, global trade. Policy makers assert that economies who embrace global trade are able to spur their development and break their vicious cycles of poverty. There are quite a number of ways that economies can use to maximize the benefits associated with global trade, however, they are all dependent on the liberalization of both domestic and international policies. Despite the posing grave challenges to the political governance of an economy, trade liberation positions a country to harness more from increased levels of economic activities (Appleyard, Field & Cobb 2005).

The increased levels of revenues that result from global trade are vital in the realization of developmental objectives of an economy. A good example of these developmental objectives is the Millennium goals commonly known as MDGs. The MDGs seek to address issues related to poverty eradication, education, child mortality issues among others. The realization of these goals relies largely on the economic performance of an economy. This implies that economies that have embraced global trade are able to realize them much faster than those that are yet to harness the benefits associated to international trade (Krrugman & Obstfeld 2009).

According to Husted & Melvin (2007), international trade is not an end in itself, but a vehicle that is paramount for the improvement of living standards through rational utilization of national economic resources. Therefore, it is apparent that trade liberalization is a keen to the enhancement of economic state of a Least developed economy. Countries need to relook further into their trade policies to ensure that they meet the international standard level. In addition, it should seek to engage in many trade negotiations to ensure that the borders of its trading partners are not restrictive. This will foster the free flow of goods and services across borders. On the other hand, developing economies need to adopt only sound policies that will encourage their development. This will ensure that those trade policies that pose threats to economic development are put at bay or at least contained.

Countries that have been able to make major strides in the past have embraced sound feasible policies. In the recent past for example, no single economy was able to thrive economically i.e. improving its citizen’s living standards singlehandedly without embracing other economies. In the contrary, global trade liberalization has played a cardinal role in the success of East Asia economies. Developing economies have not been left behind either on matters liberalization. The opening up of their boundaries to accommodate other states has boosted their competitive advantage. In addition, trade liberalization opens up an economy to foreign direct investment. These investments are robust avenues for employment to the local citizens. Foreign direct investments have rapidly reduced the unemployment rates and are accredited for breaking the vicious cycles of poverty (Appleyard, Field & Cobb 2005).

The economic prosperity of an economy relies largely on the formulation and subsequent adoption of feasible trade and investment policies. According Krrugman and Obstfeld (2009), over a billion jobs currently enjoyed by the global populace are in one way or another derived from global trade. This implies that global trade is the backbone of most economies as it not only creates avenues for employments but is also responsible for foreign receipts. The rationale behind full realization of global trade benefits is the elimination of trade barriers. Trade barriers minimize the movement of goods and services between states. Therefore, their dismantling enhances economic growth and subsequent macroeconomic stability of an economy. That is possible as exchange between economies is eased. Developing economies need to support the World Trade Organization on matters trade liberalization.

Developing economies often benefit more disbanding protectionism policies. Developing economies accrue subsidies from developed economies that are channeled to liberal economies. In addition the increased economic growth and development that is often associated with free trade brings with it an increase in income. Therefore, citizens from these developing economies are able to improve their living standards through an increase of income. Moreover, increased foreign investments lead to establishment of new firms that brings with them new jobs. The unskilled populaces are able to secure new jobs which transform them to middle class people. The general improvement people welfare guarantees economic growth of a state. In addition, it aids in breaking the vicious cycles of poverty. From the above, it is noteworthy that open economies are able to accrue more benefits from global trade than their counterparts who are exercising trade protectionism. Indeed, the benefits associated with liberation outshine the costs associated with the opening up of an economy to other states. A guess in point is India and Uganda; these two economies have been able to rapidly grow their economy by opening up their markets. In addition, the above move has slashed poverty by larger margins (Van Marrewijk, Ottens & Schueller 2007).

Trade liberalization has brought with it a lot of benefits to both the developed and the developing economies. Despite the magnitude of these gains, developing economies are not able to fully enjoy these gains. That is largely because they still over depend on developed economies for aid. For example, of all the liberalization gains, the less developed economies only enjoy a 30% with the developed economies going with the other percentage. However, the developing economies can still tighten its borrowing policies to ensure that it equally enjoys the benefits from trade liberalization and free market. Despite the amount of benefits harnessed from accessing the market of a trading partner, countries are better placed to benefit massively by freeing their own markets. However, industrial economies are well placed to accrue more gains given they remove protectionism policies in their agricultural markets. Industrial economies have often been lambasted for not liberalizing the agriculture. These economies are associated with high protection measures that are often derived from high tariff levels. According Husted and Melvin (2007), agriculture has the highest average of tariff when compared with manufacturing i.e. it is nine times higher. This showcases agriculture as one of the areas that need a lot of consideration in matters liberalization. The developing economies are also better placed to benefit from the liberalization of agriculture. However, those economies with relatively low income have great potential of gaining a lot from the liberalization of Agriculture. This is relatively because they are largely depended on it for survival and growth. In addition, a good number of its citizens are dependent on agriculture meaning the sector affects them directly (Krrugman & Obstfeld 2009).

In conclusion, it is apparent that protectionism is detrimental to growth and development of an economy. In addition, it hampers the spreading of international trade that seeks to improve the economic states of both developed and developing economies. International trade has increased the level of capital investments that have consequently opened up growth opportunities. Moreover, economies have been able to break the vicious cycles of poverty. The aforementioned was made possible by the sprouting of new companies that created employment avenues to the masses. However, the ultimate gains associated with international trade are yet to be fully realized. That is so because quite a number of developing economies still embrace protective policies. In the other hand, some who have embrace free market are not able to derive the full benefits as they are still gagged by foreign debt burden.

List of references

Appleyard, D, Field, A & Cobb, S 2005, International Economics, McGraw-Hill, New York.

Husted, S & Melvin, M 2007, International Economics, Addison-Wesley, Boston.

Krrugman, P & Obstfeld, M 2009, International Economics: Theory and policy, Addison-Wesley, Boston.

Van Marrewijk, C, Ottens, D & Schueller, S 2007, International Economics: theory, application and policy, Oxford University Press, London.