The global financial crisis that started in America and spread all over the world caused a lot of effects on the economy of countries making them develop strategies for addressing it. According to Erixon & Sally (2010 the crisis can be traced in the financial market of the United States making most countries to enter economic recession and contraction of economic trade. Reinhart & Rogoff (2008) suggests that as the economic crisis continued going on, many countries and financial sectors like banks were filling the devastating effects which led to the call for public intervention in markets. Most governments were forced to take urgent measures to address the effects of the crisis and thus protectionist policies were adopted by moist countries as a way of reducing the overall effects of the crisis. Protectionism is an economic policy that restrains trade between countries through measures like imposing tariffs on imports restrictive quotas and other regulation that protect the economy of the country from the effects of economic crisis (Fouda, 2012). The role of protectionism is to protect local businesses and economy from foreign competitors.
Protectionism is an economic response that seeks to cushion domestic manufacturers and businesses from foreign competition during times of economic contractions rather than during boom period (Durusoy, Sica, & Beyhan, 2015). Calls for protectionism are based on the fact free trade can be painful since it allows exploitation of the local economy which leads to greater effects during economic crisis. Protectionist’s belief that the role of the government is to restrict free trade and ensure that the country’s economy is protected which leads to political independence. When there are excess surplus goods within the country from outside, the country’s economy experiences weak global aggregate demand. During economic recession, the economy experiences slow or no growth and thus imposing tariffs on manufactured goods that are imported into the country increases economic growth especially in developing countries. Through allowing for expansion of domestic production and increasing exposure to increased exploitation of local opportunities within the country. Through protectionism, a false competitive advantage is created to allow local industries and the economy to turn around and achieve growth even during the crisis.
On the other hand, DeJong (2006) argues that protectionism leads to economic and political independence which makes the country to rely more on local products rather than external products. Friedman one of the free trade proponents argues that import dependency is a threat to the security and sovereignty of a country since the country depends on foreign trade for basic commodities like food, oil, or military equipment which are critical for stability of the country. Mishra (2017) suggests that protectionist policies have been adopted by developed countries as a way of achieving independence which is a key ingredient for industrialization.
New trade theorists argue that diminishing returns to scale may not work well during recession since protection seeks to build large industrial bases with increasing returns that become dominant internationally when they mature. Since protectionism is a measure that is implemented by a country of it feels its industries are being affected by unjust competition, protection seeks to cushion exploitation during financial recession rather than economic boom (Kind, 2002). The restrains on international trade protect local businesses through classic approaches that seek to minimize trade between nations. Free trade agreements that were signed by many countries have been reversed with many countries adopting protectionism as a way of dealing with the economic recession. This means that protectionism is not a declaration of trade wars using tariffs, but rather it is a way of protecting the economy of country from the recession through non-tariff weapons.
Protectionism is an economic response that seeks to cushion the economy of the country from international challenges related to the economic recession. However, it does not offer an automatic solution to economic problems that a country may be experiencing since it can make the economy of the country less competitive (James, 2009). On the other hand, the rise of free trade is based on treaties that are signed by the WTO and participating countries to regulate the way businesses are regulated by countries. These new liberalization efforts through free trade agreements and World Trade Organization mean that countries cannot unilaterally reverse the trade agreements that they have signed unless during specific circumstances. Therefore countries that wish to develop protection policies have limited scope in applying the policies. The trade barriers that several countries like India have signed to affect all economic commerce activities in the whole world.
On the other hand, (Fouda R. A., 2012)it is evident that protection policies will be met by retaliation from other countries that the protecting country has been trading with. This is because protection does not necessarily offer a solution to economic recession but can lead to another great depression. This is because retaliating countries will develop similar policies which will hinder the home country. For example implications of protectionism can be both beneficial and effective to India. It has been argued that protectionism by the US has unintended benefits that India will receive. On the other hand, IMF has argued that increased protectionism which may deteriorate the corporate balance sheets of countries like India. This will be followed by other countries also developing policies that will affect other countries (Baker, 2009).
One of the challenges experienced is that most countries like India are introducing non-transparent measures where the European Commission and other organizations like the World Trade Organization do not have a full overview of all new Relevant Measures, which are often adopted in a non-transparent way. According to research, over 201 measures have been introduced by different like reduction of 15% in imports which was reported in China, Russia, Indonesia and India. India has been systematically shutting out exports to prop domestic industries to give home industries unfair advantage.
India singled itself from the BRICS and embraced a program of economic reform seeking to establish progressive integration in the global economy. It has maintained substantial tariff and non-tariff barriers that undermine trade relations with other EU countries. This has led to variation in charges that have not been changed by increasing for the past five years. This includes tariffs in on ICT, steel and motor vehicles. For example in ICT India introduced 10% customs duty on ICT products, on the other hand, the tariffs affected EU exports like animal and animal products (particularly bovine semen, pork), plant and plant products, processed food and alcoholic beverages.
The 2008 crisis had great implications that every country was rushing out to develop any business strategy or policy that could save the situation of the crisis and at the same time offer long-term efficiency to the economy. This led developed nations to offer subsidies to automakers. Most of the developed countries including the US offered these subsidies to ensure that their automobile producers are protected to offer jobs to their citizens and at the same time offer relief to the economic crisis that the countries were facing. However, Reinert (2007) adds that this move had several implications on international trade especially during the time of the crisis. The strategy was aimed at blocking Japanese cars from their domestic markets since they were more superior to tax in the local markets. This was followed by strategies developed to keep the economy. This strategy created an artificial environment in international trade making some firms to locate their business operations from more efficient locations to get the subsidies. The market was described by economists as being unequal playing ground where countries will read from different economic status as they develop measures to protect their economy. This will allow countries managing trade to their advantage and abandon the belief in trade flows that arise from free trade (Wolf, 2009).
In a business and economic view, the subsidies helped these countries preserve jobs for their employees but at the same time led to critical implications of introducing the subsidy during the economic crisis. This led to reactions by most countries which limited market for automobiles. Many countries suffered the effects of the policy with countries like US and France resorting to the South Asian market. This led to lack of international market for cars in the whole world. Since each country produced its own vehicles, there has been no market for cars until ten years ago when things began to change (Salazar-Xirinachs, 2009). The biggest challenge is when the subsidies, some of the companies may fire some employees or shift their operations which may affect the economy of the country (Daly, 2007). The biggest implication that this subsidy had was that major developing countries did not require the services of developing countries. Since countries like the US were importing less from these countries while the imports from the US were accessed limitedly to some countries while others did not receive anything.
The role of protectionism was to stabilize the economy of, many countries through strategies that reduced the effects of the recession. In real sense, by 2011, the global economy was still unstable from different strategies that help been employed to address the recession. This means that the strategies were geared towards recovery of the economy and the end of the financial crisis. This means that if a wave of protectionism was triggered around the world making different countries to adopt the same strategy, then a double recession could have been hit the world making the economic crisis real. This will mean that countries which had adopted the strategies will be facing financial challenges which may make them not to support other initiatives in the world (The Economic Times, 2017).
This will mean that the firms that were supported by the government will fall and lead to loss of jobs for many people. This may include developing bureaucratic policies that will help companies support themselves rather than subsidies. This means that protectionism will only provide jobs in the meantime which will cause a lot of problems for teachers. Without supporting firms that are sustainable to keep themselves in business even if the government pulls out (Madsen, 2001).
However, protectionism has been argued as not paying the exact benefits that it is required to benefit. In real sense the strategy works better for developed countries like the US which have better production capacities may have different wage disparities as compared to other countries. In real sense therefore, protectionism may protect jobs for the country but may also lead to worse conditions if the measures taken do not meet the economic challenges (Vujakovic, 2010). Protectionism only works better as a temporary measure to curb economic recession. For example Japan has been described as having the worst trade policies but has not had any effect in its trade surplus. This means that to protect jobs within a country, resources have to be used to enable this strategy. This means that the estimated cost of the job that is saved exaggerate the efficacy of the protectionist measures in achieving employment objectives.
The economy of today has become global ion nature with firms having operations all over the world. The rise of information technology and other factors like free trade and regional economic blocks has increased the way business is carried out within the world. Beaudet, Schafer, & Haslam (2012) suggest that globalization has led to increased business opportunities for firms since they are able to raise their business operations beyond the country that they come from. This allows both consumers and companies to choose the way they do business depending on the benefits that they receive. For example, when developing new products, the parts may be assembled from different countries or places and then assembly taking place in one country. With this business has become easier with interconnectedness of the world. Information technology has connected the world into a smaller globe enabling organizations to easily interact with their customers. The rise of e-commerce and mobile commerce in the recent years has led to increased business opportunities that rebounded back in 2010 up to today (Lall, 2008).
The state of global business has increased with improved international production that seeks to satisfy the increasing business trends. Further, penetration of markets in the developing economies has provided new opportunities that allow business to expand their resources. Protectionism had driven nations and countries to regulate exports and imports resorting back to satisfying their local needs before going external. However, the rise of globalization and the promising opportunities being experienced in international trade have led business back to normal with some countries doing away with the strategies that they had like the crisis will never happen again. However, the global crisis led to introduction of trade distortions since the beginning of the crisis. This has been a characteristic measure of the BRIC countries which were not doing well on exports which have been dropping slowly.
Conclusion
Globalization is an opportunity that has allowed firms to operate in a global environment where they can reap greater benefits from the opportunities that are created. This makes countries to depend on each other and to operate in a business environment where there are more opportunities. However, the economic crisis that hit the world in 2008 led to the development of government measure to curb the economic recession through protectionism. As a reaction to the economic recession, the measure sought to protect jobs within countries through industries that were doing well at the time by giving subsidies to boost the business. This led to different effects at the global level with developing countries like India suffering the overall effects of the recession and the policies adopted by developed nations. This report finds that indeed protectionism is a measure to protect jobs within a country during economic recession but it is not a sustainable measure for solving the challenges associated with an economic recession (Chaichian, 2014).
Protectionism seeks to protect jobs and cushion the economy through offering subsidies that end up being more expensive than the job that is being protected. This means that better strategies can be developed rather than use of financial resources. For example establishing tariffs and controlling imports may affect some countries like India but at the same time it can increase their access to a certain market. For example protectionism in the US offers beneficial advantages to India which is carries out its activities in a global perspective. Therefore globalization is an opportunity that has given rise to business opportunities all over the globe but at the same time, makes economies dependent on each other and thus the effects of the economic crisis may be more lethal and hit harder than expected. On the other hand if it fails, then the world will go deeper into the recession making it difficult to rescue the world from crisis.
References
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