Custom essays on Evaluate the relative merits of trade protection and the range of import protection mechanisms available to implement a trade protection policy.

Foreign policy of the state includes certain kind of strategy as well as set of forms and means of state activity, aimed at promoting and regulating trade relations with other countries and their groupings. State regulation of foreign economic activity is based on the system of methods and mechanisms specific to a particular state. At this stage of intense international collaboration and large-scale integration process becomes very relevant trend is the mutual exchange of experience in the application of best management practices are foreign trade.
The two main varieties of modern trade policy include liberalization and protectionism.
The policy of liberalization involves the removal of various barriers to international trade. Along with the implementation of the principle of comparative advantage, countries receive additional benefits from trade liberalization. In fact that liberalization promotes competition and limits the monopoly within the country.
The policy of protectionism is aimed at full and comprehensive protection of the domestic market from foreign competition. It can also be in the interests of domestic businesses seeking to capture foreign markets.
Thus, protectionism includes the barriers to free trade. These barriers can be divided into two major groups:
1. Tariff barriers, which constitute a system of import and, to a lesser extent, export duties. Duty is an excise tax on the import (export) of goods. Fees are imposed either to generate income in the state budget (fiscal), or for the protection of national production (protectionist).
2. Non-tariff barriers, which include restrictive administrative measures in various forms:
• import (export) quotas – setting the maximum amount of goods that can be imported (exported);
• Licensing – means the need to obtain the relevant document (license) to import (export) of certain products;
• the introduction of standards of product quality – control of imported goods in terms of their compliance with national safety and quality standards;
• State monopolization of separate spheres of foreign trade;
• “voluntary” export restraints (in the interests of the importing country) – a relatively new form of trade barriers: exporters agree to some restrictions in the hope of avoiding more stringent barriers.
There are several advantages of trade protectionism. most of them: the need for defense, increase domestic employment, diversification for the sake of stability, protection of infant industries, protection from dumping, cheap foreign labor.
1. The need for defense. While this argument is rather the military-political than economic, it looks pretty convincing. The desire of governments to support industries related to national defense is not waning. This is a good reason to protect specific domestic industries and many are motivated by protectionist means exactly it. Although this protectionist argument entails a high social and economic costs, these costs are justified by the need to strengthen national security.
2. The increase in domestic employment. The essence of this argument boils down to the fact that the introduction of protectionist measures creates new jobs, and free trade leads to unemployment. Free trade is not so much effect overall employment, but really changes the type of employment. The assertion that free trade can lead to unemployment, practically in the short term, has a foundation: trade reduces the demand for certain goods of domestic production and leads to unemployment in the sectors of manufacturing. But the unused resources can not be useless, because we live in a world with limited resources. In the absence of restrictions on trade in industries producing goods for export, it requires the flow of labor, compensating for the reduction of jobs in industries competing with imports. Unemployment, which arose as a result of free trade – is the problem of short-term period: in this case, sound monetary and fiscal policies should be timely pursued.
3. Diversification for the sake of stability. The essence of this protectionist argument is that trade barriers are needed for industrial diversification, which is the basis of reducing dependence on socio-economic and political situation that has arisen in the world markets of various products. Indeed, diversification helps insulate the domestic economy from the impact of international political developments, from the drop in production abroad, from the random fluctuations of demand and supply for one or two specific products and thus provides greater internal stability. However, it should be mentioned that the economic costs of diversification can be very significant and extremely inefficient, especially when it comes to countries with single-crop economies. Furthermore, the diversification argument for stability is practically not applicable to industrialized countries with the already diversified economic structure.
4. Protection of new industries. This means protecting the industry, which has not yet achieved economies of scale, where neither workers nor managers have not yet reached the peak of efficiency. It is believed that if to provide this industry some protection from foreign competition, it will eventually for some time, will be able to compete in international markets. But new industries are becoming stronger, and moreover, the direct subsidization of new industries, according to most economists, is more effective. As for the developing countries, there it is difficult to determine which of the branches is new and requires protection.
5. Protection against dumping. We know that dumping or selling goods below cost is typically used to suppress competition, capturing monopoly position and the subsequent price increases. This sense of dumping – is “economic piracy”. It deserves the anti-dumping duties. But dumping should not be used as a justification for permanent trade barriers as a form of price discrimination. In addition, the dumping may be issued and the result of the law of comparative advantage, which ultimately undermines the very foundations of international trade.
6. Cheap foreign labor. Those who support this argument, consider that using protectionist domestic firms and workers can be protected from the destructive lifestyle of competition from those countries where low wages. In other words, without the crash action from the state, domestic workers may receive the same low wages, as workers of less developed countries. However, the level of wages paid to foreign workers, not by itself mean that their products will be cheaper. To prove this, it is necessary to compare wages and productivity of workers in both countries. If more high-wage American worker has higher productivity, it can compete without fear that he will be paid less.
The most widely used kinds of trade barriers are: tariffs, which are high taxes on imported goods that make them less competitive with domestic products, and subsidies, which are monies paid to domestic producers that allow them to sell goods more cheaply than their foreign competitors. (Stephen Spruiell 2006)
This policy is expected to prevent foreign producers from large selling in domestic markets, because sometimes imported products have advantages over the domestic, for example they are cheaper and so may be preferred by buyers.
So, the state can use tariffs or subsidies to implement to keep its country’s markets closed to other countries, also government can use quotas on imported goods, expensive licenses for importers, and sometimes outright bans on foreign goods, but tariffs and subsidies are the main ones. (Stephen Spruiell 2006)