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Protectionism is bound to be detrimental to the US economy in the long run
Protectionism is the act of a government regulating the presence and operations of foreign companies and organizations operating in their soil in order to shield its domestic industries. Most of the time the regulations are done by imposing high tariffs and levies on foreign companies in order to discourage them from operating in foreign soils. Most of the time protectionism is done in good faith however it always generates a negative ripple effect on the general economy of the country practicing protectionism. It is important that nations protect specific industries however there should be a limit to it in order to ensure the survival of an economy. In relation to economic theories, the Laissez-faire theory is against government interference in the economy more so in capitalistic states (Berend, 2016).
Trumps push for the United States of America to practice protectionism might be in response to protect the industries of the nation. Protectionism might be effective for a short duration,however, in the long run, will hurt the nation.
Protectionism is bound to create a vicious protectionist cycle in the world
What the president and his government should do is to look for ways of reducing fiscal deficits by reducing public spending and increasing revenue. Amando wrote in his article towards the end of 2017 that protectionism is bound to rub off on other nations wrongly more so other economic giants in the world such as china and the UK (Armando, 2017). The most likely reaction to the US’ protectionism is other nations blocking or curtailing the operations of US firms, companies and organizations in their countries. According toLavergne, this would have a negative ripple effect on the US’ economy as the creation of a vicious protectionist cycle (Lavergne, 2014). Not only will it affect the country’s economy but also trade agreements and political environment; inter-political environment will be tense (Watson & James, 2013).
Another disadvantage of protectionism is that it impedes the sharing of technology (Demboaur& Stammers, 2018). At the moment, the US is one of the nations that can be categorized in the top ten technological nations of the world. The way technology advancement happens is through the sharing of technology; nations build on other nation’s technological advancement. By advocating for protectionism, other nations become unwilling to share their technological advancement with the US. The US can survive with the technology it has for a limited number of years but with other nations sharing their technologies the US can be more technological advanced (Grundke& Moser, 2016).
Different nations have their own specialty and productivity advantages. For example countries in the Middle East are rich in fossil fuel compared to countries from any other part of the world. Asian nations are good at technology. Protectionism impedes the use of other countries advantages and specialty (Wind, 2017). As of the moment, the nation’s automobile industry is moving to eco-friendly technology and by choosing to practice protectionism, the country risks losing the technological specialty that other nations offer in eco-friendly technology. This, in the long run, will affect the automobile industry which in turn will affect the country’s economy.
Protectionism is bound to create a lack of competition
In relation to the theory of demand, supply and the price mechanism, the price of a commodity determines how much of a product a consumer purchases. By enforcing protectionism, the president and his government are directly doing away with competition thereby doing away with a major regulator of pricing in commodities. When there are many competitors offering similar products, then the price of the commodity is bound to be low. In the US case, protectionism will do away with competition leaving the nation with fewer suppliers of commodities. Due to low supply, the demand of the commodities is bound to shoot which will also bring up the pricing of the commodities(Watson & James, 2013). If the commodities are highly priced then fewer Americans will be able to afford the commodities which will impact the industries. If the industries are crippled then the economy will be crippled as well.
Protectionism will lead to unemployment
As of the moment, there are many foreign manufacturing companies as well as organizations that have their operations in the US and by enforcing protectionism; the US government indirectly renders many Americans jobless. One of the conditions that foreign manufacturing companies had to meet in order to get their operating licenses was that they employ Americans. By making this companies and organizations close shop, the US government is terminating the services of the Americans working in the companies (Irwin, 2017). Unemployment reduces the purchasing power of those unemployed which in turn affects the GDP and the economy in general. In reference to Melgar, Milgram-Baleix and Rossi, Unemployment pushes people to look for other ways of getting money and some people switch to social vices and crime (Melgar, Milgram-Baleix& Rossi, 2013). An increase in crime rate due to unemployment discourages people from venturing into business; unemployment breeds an unhealthy business environment.
Manufacturing workers can use their unions to campaign against protectionism. The can also use their unions to secure them their jobs in the eventuality that protectionism is enforced. Manufacturing workers union can twist the hands of the government to ensure that workers do not lose their jobs should their foreign employers be forced or pushed out of American soil (Thompson, 2017).
Conclusion
Protectionism is damaging to any country’s economy with the US included. The act of restricting foreign companies from operating in foreign soils is bound to get retaliation from the restricted nations. Foreign nations will not be too eager to import products and services from the US if they believe that the US does not favor their operations in the US. If retaliation takes place then the US will have to depend entirely on its domestic market to push and run its economy. The above is not sustainable for long. Protectionism is not typically good for the economy as it will damage international relations in the process. In addition, it is bound to cause many Americans who rely on foreign organizations operating on American soil to lose their jobs. It is advisable that the government regulates specific industries to allow for the growth of domestic companies as opposed to enforcing protectionism on all the industries in the US.
References
Armando, M. V. (2017). The impact of the new US foreign trade policies on the economics relations between EU and Mercosur (Doctoral dissertation).
Berend, I. T. (2016). An economic history of twentieth-century Europe: economic regimes from laissez-faire to globalization. Cambridge University Press.
Dembour, M. B., & Stammers, N. (2018). Free trade, protectionism, neoliberalism: tensions and continuities. London Review of International Law, 6(2), 169-188.
Grundke, R., & Moser, C. (2016).Evidence of Hidden Protectionism in the US in the Great Recession.
Irwin, D. A. (2017). Peddling protectionism: Smoot-Hawley and the great depression. Princeton University Press.
Lavergne, R. P. (2014). The political economy of US tariffs: An empirical analysis. Elsevier.
Melgar, N., Milgram-Baleix, J., & Rossi, M. (2013).Explaining protectionism support: the role of economic factors. ISRN Economics, 2013.
Thompson, B. (2017). Solving the Corporate Inversion Phenomenon: An Exercise in Free Market Patriotism, Protectionism ThroughFaciliation. The Business, Entrepreneurship & Tax Law Review, 1(2), 657.
Watson, K., & James, S. (2013). Regulatory protectionism: A hidden threat to free trade.
Wind, S. L. (2017). The Decline of Manufacturing in the US Economy: Impacts of China's ‘Trade Shock’, Trump's Protectionist Tariffs, and the Drivers of Manufacturing Job Losses (Presentation Slides).
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