Royal Roads University
Author Note
This assignment was prepared for the course of MGMT 561, Political Geography and International Economics taught by Dr. Sean Irvin was due on October 21, 2018.
Protectionist Sentiment in USA
The current paper provides an explanation of why protectionism is not a good practice for the development and growth of the United States (US) economy. Besides, the paper addresses the issue of why protectionism is unlikely to benefit manufacturing workers in the US and what these workers should do to adapt to the evolving economy. Protectionism in the context of the current research is considered as the theory or practice of shielding the domestic industries in a country from foreign competition. Protectionism is mainly done by taxing or imposing tariffs on imports. A protectionist is, therefore, the advocate of the policy created by the government to shield the domestic industries from foreign competition. The protectionist addressed in the current paper is the current US President Donald Trump.
Donald Trump, during his election campaigns, promised an American centric approach to trade where American industries would be protected from foreign competition. The president has already achieved his protectionist agenda and promise to the citizens of the nation by imposing high tariffs on a number of imports from outside the US. For instance, the president imposed tariffs on aluminum and steel imports into the US as well as a wide range of products imported from China (Lavin, Deringer, & Erixon, 2018; Lincicome, 2017). In addition, the president triggered a re-negotiation of the North American Free Trade Agreement (NAFTA) and was able to remove the US out of the Trans-Pacific Partnership Agreement (TPP). The US president also launched a renegotiation of the US-Korea Free Trade Agreement and is considered to be further threatening and prepared to walk away and take the US out of NAFTA (Lavin et al., 2018). These protectionist practices among other measures that would reduce international trade activities were perceived to be of great value to the US economy and the manufacturing sector in the country as the country’s manufacturing sector was plummeting (Blecker, 2014).
The main purpose of imposing tariffs on imports from other countries was to benefit the US workers in the manufacturing sector and reduce the US trade deficit to maintain the country’s economic growth and development (Lavin et al., 2018). The manufacturing sector workers believe that they have been left behind by globalization and such a protectionist strategy and policy will improve the country’s economy and their living standards.
However, this is contrary as protectionism has been considered to be a challenge and a burden to the economy of the US. President Trump protectionism practices have been considered to fail. According to Lavin et al. (2018), one of the reasons why the protectionist approach is not good for the economy is because it would slow down economic growth resulting in the US trade deficit increasing. The US firms, which includes manufacturing firms, are deeply involved and integrated into the North American supply and value chains under the NAFTA (Baldwin & Evenett, 2009; Blecker, 2014; Lavin et al., 2018). Besides, the country’s imports from Canada and Mexico have a significant share of US value addition. Therefore, cutting the access to the imports, especially from NAFTA partners, is considered to drive up the cost of production in the US and hinder its global competitiveness (Lavin et al., 2018). Moreover, on addressing the issue of leaving NAFTA, Lavin et al. (2018) said “leaving NAFTA would reduce US exports, not only to NAFTA partners but other markets as well”. This is considered to affect the US economy negatively leading to its potential decline. The protectionist measures have imposed huge economic costs on the consumers as well as the economy having failed to achieve their primary policy aims (Lincicome, 2017). Moreover, the protectionist and defensive trade policy is also considered to hinder free trade and restricting access to foreign goods leading to a negative effect on the economy (Baldwin & Evenett, 2009; Wharton University of Pennsylvania, 2018).
Besides, the reduction of US exports due to the protectionist approach would affect the revenues of manufacturing firms which may lead to such firms reducing the wages of their workers or implementing cost-cutting strategies such as reducing the number of workers. Also, the protectionist approach is considered to increase the trade costs of trade with NAFTA partners as well as other international trade partners which would lead to increased repatriation of jobs to the US (Lavin et al., 2018). This would affect employment in the country and the living standards of manufacturing workers.
A case in point is the steel sector. Steel is a valuable input product that is widely used for construction and industrial manufacturing. Protectionism is considered to raise the cost of such input. Increasing the cost of inputs, on the other hand, will reduce the competitiveness of the manufacturing sector such as automotive manufacturing sector which is considered to lead to the reduction and loss of blue-collar jobs in the country affecting employment of manufacturing workers (Lavin et al., 2018). As such, the protectionist strategy is not beneficial to the economy, in particular, to the US manufacturing sector and workers.
The economic and international theory of free trade was formulated based on the unprecedented success of England in various sectors such as trade and industry (Sen, 2010). A major contributor of this success is the division of labor where the division of labor in large-scale industries created the opportunity of lowering labor costs which in turn ensured effective competition across countries (Sen, 2010). Therefore, manufacturing firms and associated workers can adopt such a strategy where labor is effectively divided among available workers to ensure they adapt to the evolving competitive economy and are able to compete effectively in the local and global scale.
In conclusion, the research finds that the protectionist approach initiated by President Donald Trump in his tenure as the president of the US is not overall beneficial to the development and growth of the country’s economy. Besides, the research finds the approach unlikely to benefit the US manufacturing workers. This is because the protectionist approach increases the cost of production, cost of inputs, reduces exports and hinders free trade as well as competitiveness. A solution for the manufacturing workers to adapt to the evolving economy is for them or the firms to subdivide labor to reduce labor costs which will, in turn, enable them to compete effectively with other countries.
References
Baldwin, R., & Evenett, S. (2009). The collapse of global trade, murky protectionism and the crisis: Recommendations for the G20. London, UK: Centre for Economic Policy Research (CEPR).
Blecker, R. A. (2014). The Mexican and US economies after twenty years of NAFTA. International Journal of Political Economy, 43(2), 5-26.
Lavin, F., Deringer, H., & Erixon, F. (2018). Deepening NAFTA and signing new trade agreements: A US trade strategy to boost the economy and reduce the trade deficit. Retrieved from ecipe.org/app/uploads/2018/01/ECI_17_PolicyBrief_2_2018_RGB_LY05.pdf
Lincicome, S. (2017). Doomed to repeat it: The long history of America’s protectionist failures. Policy Analysis No. 819. Retrieved from https://object.cato.org/sites/cato.org/files/pubs/pdf/pa-819-updated.pdf
Sen, S. (2010). International trade theory and policy: a review of the literature. Working Paper No. 635. Retrieved from www.levyinstitute.org/pubs/wp_635.pdf
Wharton University of Pennsylvania. (2018). Why protectionism won’t bring back jobs. Retrieved from knowledge.wharton.upenn.edu/article/protectionism-wont-bring-back-jobs-lost-free-trade/
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