Protectionism on Global Trade

25 Mark Essay Structure KAA - 16 marks = 3-4 points, definitely do three points, 4 if you have any extra time Knowledge, Application, Analysis Evaluation - 9 marks = 3 points = 3+3+3 or 4 points = 3+2+2+2 (this depends on the number of analysis points you do Please use the model essay that I have written below as a guide The fact that global protectionism is increasing is a significant economic concern". Discuss (25 marks) Introduction Protectionism is when countries seek to reduce the amount of free trade they are engaged in. The aim is protect domestic firms from foreign competition. It has been increasingly implied by the principles of classical economics that countries can gain from trade if they specialise according to their comparative advantage. Following the 2008 Financial Crisis, the persistence of high structural unemployment levels and the widening of income gap, there has been a rising tide of protectionism across the world. Rising protectionism is certainly a concern in the short to medium term, the level of protectionism tends to occur in cycles so the long term effects may be less significant. Point One (Analysis): Firstly, protectionism offers a safeguard to inefficient domestic producers against foreign competition. Tariffs raise the price of imported goods. This reduces the leakages from the economy and keeps domestic workers in jobs. Most recently, Donald Trump has imposed a 10% tariff on 40% off all imported goods from China, to reduce the quantity of goods coming in and to raise tax revenue too. By keeping Americans in work, President Trump is also hoping for a positive multiplier effect which will stimulate growth A safe start with a clear definition. A clear link to a key economic theory is made implies good economic knowledge There is awareness of the current state of the economy. The final sentence sets a clear path for the line of argument in the essay. The point is stated clearly in the first sentence, before being developed in a chain of analysis using accurate economic theory and terminology and the use of a real life example. Good Theory: multiplier, growth and business confidence. This paragraph ends by linking explicitly to the question. and domestic business confidence. Point One (Evaluation): There is an important difference, between large developed economies and most emerging countries. The USA has a population of over 300 million and an annual GDP circa $18trn. USA's domestic market is rich and large enough to receive foreign competition. Smaller and relatively poorer countries struggle to find the same level of capital investment if they cannot export to the world. If their banking system is not well developed either, then competition in domestic markets will struggle to gain traction if finance for investment is not readily available. As a result, inefficient monopolies/oligopolies may form and persist leading to a fall in domestic community surplus/welfare. In the developed world, governments need to ensure that there is competition, otherwise, when faced with few foreign competitors, domestic producers will be unwilling to reinvest profits, causing a lack of dynamic efficiency, leading to x- inefficiency. Therefore, whether protectionism should be a cause for concern depends on the extent to which domestic competition is likely to occur. The evaluation here has considered different perspectives - there are links here with development, financial markets and monopoly theory. The final sentence of this paragraph is very helpful in ensuring that the essay remains focused on the question. Point Two (Analysis): A key problem that arises from the use of tariffs and quotas is that prices rise. Consumers in developed economies enjoy cheap food, clothes and manufactured items because production is outsourced abroad where unit labour costs are lower. This has been essential in mitigating the negative effects of the recession on household real Incomes. Tariffs reduce consumer surplus and, depending on a country's overall dependency on imports, might lead to cost- push inflation across the whole economy. Lower income families will experience a lower standard of living, there is a regressive effect. Protectionism guarantees higher sales Contextualised analysis - the impact of tariffs is considered in light of recent economic events. The use of language throughout the essay is persuasive. invest and achieve economies of scale. This could then lead to a reduction in prices even if profit margins are maintained. In addition, domestic competition can drive efficiency gains in a similar way to how trade, ensuring that consumers will get low prices after an initial rise, and so therefore protectionism should not be too concerning. Point Two (Evaluation): The key criticism for protectionism is that it leads to retaliation and trade wars. This is likely to occur between the US and China as a result of Trump's decision to implement 10% tariffs on at least 40% of Chinese imports. The theory of comparative advantage states that all countries can specialise in the production of certain goods and services, causing world output to increase and improving the standard of living. Whilst protectionism may not lead to better welfare for all, it may improve for some. For example, In the UK there has been the decline of the steel industry due to low cost foreign competition. Protectionist policies provide hope for workers who are seeing a decline in their industries. Being able to provide a job for these workers can be economically beneficial, because it can lead to a strong positive multiplier. So it could be suggested that protectionism should be of concern depending on your working status. Point Three (Analysis): Protectionism may protect local cultures (e.g restrictions on foreign language music on English radio) and can keep some historical trades alive. Economists might not see the value in these arguments and may dismiss them quickly. Instead they might argue that trade fosters international diplomacy and cite the fact that countries which trade with one another don't often go to war, promoting Point Three (Evaluation): The level of culture is not considered to be a significant factor for most countries. Both developed and developing countries have Real world evidence makes this argument stronger Good use of theory to support the argument Evaluation has considered different perspectives-e.g. low skilled workers This point illustrates that you can go into the topic at a broader rate. The use of counterarguments have been gone through various structural changes and globalisation which have somewhat taken away the sense of culture, way before protectionist measures were needed to be implemented. used in this paragraph. Conclusion: In conclusion, economists should be concerned by protectionist policies. Protectionism reduces global welfare as prices rise, choice falls and competition is reduced. But it is easy to see why protectionism is on the rise especially in a period of unprecedented uncertainty. Protectionism promises to support domestic producers and increase employment levels. Economists should be looking at ways to solve their domestic issues more effectively rather than focusing on protectionism. A tidy conclusion - no new points, but a clear judgement whether this is actually the real issue, supported the two competing perspectives on protectionism, is reached.