Free Trade Vs Protectionism Essay

nFree trade is a policy by which a government does not discriminate against import or export, and it does not imply that a country abandons all tariffs and duties of imports and exports. The conceptual case for free trade is based on an argument that the division of labor among countries leads to concentration, greater effectiveness, and higher output.nFree trading partners are less likely to go to war with each other

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nA nations capital and labor resources can be used in a open market

nFree trade promotes economic growth

nProtectionism is the policy of protecting domestic industries against foreign competition by means of tariffs, subsides, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors.

to spite the fact that the world economy benefits more from free trade many countries still implement protectionism policies

nProvides large benefits to a small number of people

nCauses consumers a loss in that they pay higher prices

The Monetary and Non-Monetary Costs Of Protectionism

nTextiles protectionism in the textile industry has cost poor families almost 9% of their disposable income.

nIt destroys more jobs than it saves.nQuality may decline if higher quality products become less available or totally unavailable as a result of protectionism.nIt causes loss of individual rights.nProtectionism cost between $50,000-$134,686 a year for each textile job saved.The Monetary and Non-Monetary Costs Of Protectionism

nExport restrictions on automobiles cost consumers about $14 billion.nQuota rents can raise prices because auto quotas have been estimated to be

n$2.2 billion and $7.9 billion a year.nImport quotas added $2,400 to the price of a Japanese car.nThe annual cost of quotas was $241,235 per auto job saved.nThe dairy industry estimated a loss caused by protectionism of $1.4 billion.nQuota rents cost $250 million a year.nUnder Chilean tax laws, local and foreign companies are treated equally.

nChile imposes a 10% tariff rate, which is low compared to the rates of most countries.

nThe Chilean trade industry will start cutting tariffs by one percentage point per year

n Bringing it down to a flat 6% by 2003, and reducing the tariff, by one percentage point per year and will achieve a zero tariff by 2010.

nChile also has two free trade zones, one in each of the extreme northern and southern regions of the country.

nThe Japanese market is one of the hardest industries to do business.nThe Japanese system of trade is a very good example of protectionism.n Japan has always been very protective of certain domestic markets.n Japanese consumers pay five times the world price for rice because of import restrictions protecting Japanese farmers.

Rice Imports and Exports in the Japanese Market

•The conclusion, then, is that there is no easy solution. The best solution, from an objective perspective, is total free trade, regardless of the consequences. This solution would return the “servant” theory of government, the view that government should be the servant of the people — the protector of life, liberty and property — and not a redistribute of wealth. Total and immediate free trade would also cause resources to be reallocated to more productive uses faster, whereas a gradualist approach would halt this shifting of resources.

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