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Research topic: "Protectionism problems and prospects during the current economic crisis."

Today we take care of a global economic crisis and how countries are trying to solve this problem in different ways. All the world's leaders without exception state that protectionism exacerbates the current crisis situation. As a matter of fact, such assurances of free trade policy are far from reality. Trade barriers appear all around the world every day. The number of antidumping investigations increased by 40%. Export volume is brought down in all countries (Japan by 50% per year, Germany - more than 20%). And the countries keep on imposing different restrictions on other exporters. The EU wants to put a tax on biofuel from Latin America. CIS governments isolate themselves from foreign competitors for the domestic industry saving purposes. The protectionism is an urgent problem of today because the governments may simply refuse to defend their national economies from "outside" impulses. And I think that each country can successfully overcome the crisis by means of restriction policy. The world trade isolation degree, chosen in accordance with their capabilities, will work as a support but not as a restriction to the protectionism. As my explanation to this topic, I can say that I wondered after looking through the both polices: "What would happen if the country did not carry out the protective measures in foreign trade?" As a result I came to the conclusion: the increasing hegemony, threat of war, because the relatively developed countries would require a power over the "weak" ones, expanding their possessions, would like to have an access to foreign resources, and relatively backward countries sooner or later will be tired of being dependent, and finally the world would turn back. So, I decided that protectionism - it is not a barrier to trade and political relations, but a kind of step that must be overcome ... slipped by ... to get stronger, and only when the government will have its feet on the ground, it will be able to enter into foreign trade and policy relations, to take part in

them,

and

not

to

"play

the

game"

of

leading

powers.

At the beginning I want to say that there are two types of foreign policy - free trade policy and protectionism policy. These are 2 totally contradictory foreign trade adjustment policies: the first is aimed at interstate restrictions and barriers removal, and the second – just on the contrary, focused on import limit to protect the domestic production. But both of them were be used by countries at different times, and now, when most of the world is swallowed up by the crisis, the future of international trade depends from the policy conducted by the countries. There are 2 main ways of protectionism performing. The purpose of the first way protection of inefficient and uncompetitive domestic production. This way does not usually prove its value, because of abrupt release of trade communications scares and irritates the former economic partners, and political stability can be quickly broken. We can see it in the United


States, where the Buy American Act was recently passed (the Act about compulsory purchase of American-made goods), thus practically isolated competitive Chinese and Brazilian steel exporters from the domestic American market. And finally they had to withdraw from this act, a signal received by China and Brazil could bring the trade war with the United States. The purpose of the other way is to improve the quality of national products production of goods is not due to foreign competitors exclusion by force, but due to the national competitiveness growth and gradual coming into the export market. Such a way was made by Japan (XX century after the WWII).

(blue line)- Demand on the national products (pink line)- Demand on the imported products

As you can see from the diagram, domestic production level is growing and getting better, there is not only demand for goods but also an ability to compete with foreign exporters. Without any serious barriers, they have forced foreign competitors by high demand for affordable

domestic

product

of

high

quality.

Such protectionism policy, I consider, should be done in every import-dependent country to succeed in domestic and foreign trade.

Protectionism in its own way exists in economy since first countries formation. The first mention about measures used in Russia, is contained in the Church discipline of the Prince Vladimir, which refers to 996 (the country paid a tenth part of the income from trade and harvesting tithe). The mercantilists were the theorists and practitioners of protectionism during the period of primary accumulation of capital and capitalist relations origin; they demanded government to protect domestic industries from foreign competition. And, finally, collapse of the colonial


system and the appearing of developing countries, who aimed at protecting their young economies from the dictates of major Western companies, brought life into protectionism policy. It is more profitable for the country to impose tariffs and quotas on foreign trade because of fiscal purposes and favuorable purposes for domestic producers, than to search other mechanisms for economic growth stimulation. However, history proves that it is obligatory to protect national economy during the way of its formation and strengthening. Let’s take a case of Europe and the United States under the premonopoly capitalism, when both of these countries were characterized by "protective" protectionism policy, directed at protection of national industries from more developed UK industries, who conducted the "Free Trade Policy" (1840s). What can we see now: almost all countries rely on the free trade policy against the background of globalization and international integration, developing at the same time both trade and also political relations. And again developing and under-developed countries must do the moderate protectionism policy: especially countries with inner potential and ability to respond to their demand with cheap import goods, exchanging it for country resources, or in pressure of resources by paying loans. These countries should first think about the economic isolation, its grounds are stipulated by following indicators: 1) curtailment of demand for foreign goods (especially goods already being produced within the country or the country has everything to start this production); 2) Tax revenues increase to the country’s spending, 3) improving its trade balance (due to external debt reduction concerning trade), and 4) support of individual industries.

However, in response to international trade liberalization the performance of restrictions would be a mistake. To my mind, it would be easy for the interested countries to start the protectionism policy with nontariff barriers (quotas, licenses, technical barriers and requirements for the local components in the imported goods, subsidies, loans), progressively isolating its economy. Such system of staged national economy removal has been practiced by many modern developed and developing countries. First of all – by the UK, even before it became a world power and the free trade policy leader, this country conducted the strong protectionism policy (since 1651 – Act of Navigation), which guaranteed its prosperity; Canada, Australia, New Zealand - former British colonies - were closed countries before their growth into industrially advances ones. The same can be said about the United States, Japan, China, India and many other countries.

I have studied works of professors from Cardiff University (Great Britain, materials 2009), who consider, that during a global financial crisis the leading European countries (Germany, Italy, France) can’t withdraw from the protectionism policy in fear of unemployment, which can


occur since bankruptcy of weak or less competitive national companies or even worse – of large transnational corporations (as in the USA - the largest American automobile concern General Motors, having announced the bankruptcy, is going to dismiss almost 50 thousand of employees and shut down 5 automobile plants in the USA by the end of 2009). Therefore, what heads of governments didn’t say, but with shutting of large enterprises and mass dismissal, they have to take protective measures. There the national stability becomes the priority, but not a foreign policy. According to the last data, mass meetings have already taken place in Italy and France, and excessive dependence of Iceland banking system (exactly as Latvian and Czech banking system) from international structures turned to be a fast growth of unemployment, 20% inflation, national currency downfall, and ,eventually, government dismissal.

Moreover, according to professors, governments of some countries had to defend the national companies, taking into consideration their inevitable bankruptcy, fear of their takeover by foreign enterprises. The takeover, in its turn, threatens to foreign monopoly development in the country. The RF afraid of transnational protective holdings on the Russian market, which can takeover local domestic protective enterprises, how it already happened in Baltics (where 90% of the market belongs to foreigners).

What is the reason of inefficient protectionism policy? Even D. E. Mendeleev wrote, that customs duties imposing should be careful, without excessively inflation (as it leads to negative results: increasing the shares of budget through imported good taxes, and on the contrary – to abrupt imported goods reduction, and, consequently, to the competition decrease on the domestic market, quality deterioration of manufactured product, and at last, to unjustifiably high prices for these goods. Such state of things has dual negative effect – firstly, state budget continues to decrease, secondly, worsened relations between exporting countries and the state government can bring a trade war, or even worse – to a political war. Therefore, I consider that a solution of Russian government concerning the increase duties from 25% to 30-35 % for import vehicles, is not quite successful (because of abroad drain of money), which has already proved validity of my statements about the decrease in budget and national goods quality reduction. Generally, nowadays the Russian automobile companies undergo hard times. Not only our motor cars are not in demand, but also major auto companies don’t receive returns in loans. The can’t borrow money from the bank (the interest rates are too high to pay them off because of a lack of money), and quality of the vehicles (I must notice which was already far from the best) has reduced. Sales reduction by 50 %( it is less than in the same period of the last year), and, as usual, people (workers) were affected in everything .At best- they have been cut in


wages, at worse - workers of the factories have been dismissed. Or, for instance, not quite successful USA policy, which actively antagonizes the foreigners’ employment. Trying to escape the unemployment and mass disturbances in such way, American government caused a great resentment of European and Latin-American countries, whose specialists make regularly business trips to the USA. And the day before London summit, which brought together leaders of 20 nations, the presidents of France and Germany were ready to refuse to participate the London summit, if the U.S. does not stop rough protectionism policy. My conclusion is: any restriction within a crisis situation and people grievances should be done with special care.


Protectionism problems and prospects during the economic crisis in 2008  

my own overview on the facts and events world over during the global crises in 2008. A predictable slump or just a scary tale? Read it and y...

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