Free Trade Vs Protection

FREE TRADE VS PROTECTION
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CHAPTER 1

INTRODUCTION

Trade has right from the creation of an organized market been an integral part of the economy of
a Nation or Business. No economy beginning with the early Mesopotamian civilisation has
survived and prospered without actively taking part in Trade both internally and with other
foreign economies. International trade has not just helped nations to develop economically but
also grow socially and culturally. Exposure of various foreign social cultures and practices
brought forward by International trade has in many instances helped economies develop as a
whole.
However this concept of gaining mutual benefit from exchange of goods and service had held
two contrasting ideologies regarding the level of control placed on trade. They are Free Trade
and Protectionism. Both concepts have been in use in one form or another from times
immemorial and each hold their advantages and downfalls. There continues to be a debate as to
which trade policy is better suited in helping in the growth of an economy. However, like any
economic ideology, Both Free Trade and Protectionism is dynamic concepts and each of them
has had its place in history and with changing times and economic situations, policies of both
ideologies have helped nations move ahead. In contemporary times, with rapid globalization and
the unprecedented growth of the world economy in a short period of time, Free Trade policies
are preferred as they help in maintaining a steady stream of resource both intellectual and
material to be exchanged and mutually benefitted upon. An attempt to try and understand each
aspect of these ideologies will never cease to exist and with changing situations, the applicability
and usage of each of these concepts will continue to develop and change.
Free Trade and Protection in History
The history of Free trade witnessed its most dramatic moment in Britain in the culmination in
the 1840s of a long conflict over protection. The Corn Laws (tariffs on imported grain, mostly

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wheat) were abolished in 1846 after a thirty-year battle. The Navigation Acts were repealed in
1949. Duties on a wide range of commodities were gradually dismantled over a long period from
the 1820s to the 1860s. A number of duties survived (mostly for revenue purposes). However, by
the 1870s, Britain provided the closest approximation in history to a country abiding by free
trade principles.
The transformation has been hailed by free-traders as a great victory for the principle, and as a
symbol for broader application. Yet there were particular conditions attending the change. The
height of the corn duties reflected atypical restrictions established during the Napoleonic War; by
any reasonable consideration they had to be reduced. However, the specific battle over the Corn
Laws absorbed the broad political tensions of mid-century Britain.
Behind the high price of grain lay the entrenched power of the landlord class, resented by other
sections of the community. Workers and the Lower middle classes (artisans, shopkeepers, etc.)
resented the high price of bread (the staple of the typical diet); employers resented being
pressured over wages costs that included a high bread price. At the same time, workers and the
lower middle classes resented a restricted franchise that denied them the vote (reflected in the
Chartist movement). Yet the free-trader businessmen were typically anti-democratic and fought
to divert public dissent over the vote to safer demands over the price of bread.
The Corn Laws battle thus involved a conflict over the fundamental structure of the British
economy. By the early nineteenth century Britain had become the premier industrial power. The
range of duties on materials (inputs into production) was increasingly counter-productive; so also
were those on manufactures themselves, because they provoked imitation by developing
European competitors. The Corn Laws also inhibited the export of manufactures, for lack of
export income in the grain-growing countries.
In short, there was a strategic vision behind the Corn Law battle one developing since the
1780s, following the loss of the American colonies. What followed was a recasting rather than a
rejection of mercantilist doctrines. This was to be an era not of Free trade but of Free trade
imperialism (Semmel, 1970). As one parliamentary speaker claimed during the 1846 debates,

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free trade was the principle by which foreign nations would become valuable Colonies to us,
without imposing on us the responsibility of governing them (Semmel, 1970, p.8). This was a
vision of Britain as Workshop of the world, exchanging Value-added exports for imports of
materials and food, on advantageous terms.
This epochal transformation of British trade policy is better understood as a process in which
material interests are more significant progenitors of change than are abstract principles. Free
trade was rational for Britain as the worlds premier industrial power. Moreover, there were two
further material reasons why Britain persisted with free trade.
First, protection in nineteenth century Britain meant protection of agricultural products. Free
trade thus meant cheaper food, and it gathered the support of many low- and middle-income
people through successive elections into the Twentieth Century. Second, by the late Nineteenth
Century, the driving force of the British economy had become the finance sector, centered on the
City of London and a handful of great multinational trading companies (such as Lever &
Kitchen). Substantial profits were made in the mediation of international finance and trade, and
free trade was functional to this process.
The limited power of abstract principles was dramatically reflected elsewhere. As noted above,
all the second-rank industrialising nations had become protectionist after the 1870s in the context
of rapid industrial development, coupled with persistent economic crises.
Britain survived the divergence in national trade policies between itself and other countries for as
long as its earnings from exports of services (shipping, financial services, etc.) and from overseas
investments compensated for its growing deficit on merchandise trade. When a long-term deficit
on the balance of payments loomed, compounded by enormous losses from the First World War,
Britain belatedly turned to the Empire for help. Thus was Imperial Preference born in 1932,
although conceived fifty years previously and treated with derision at the time.
The second important historical example is provided by the period after World War II. The 1948
General Agreement on Tariffs and Trade oversaw a subsequent significant freeing up of trade.

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The achievement was remarkable but, again, the context and process is illuminating. G.A.T.T.
embodied a pragmatic procedure for an orderly reduction of tariffs through painstaking
negotiation on the basis of mutual self-interest. The freeing of trade restrictions under this regime
was significant but selective. The reductions were centered on manufactured goods and
equipment.
Liberalisation was not associated with greater national specialisation in the production and
export of individual industries, as predicted by the textbooks. On the contrary, tariff cuts realised
the potential for a higher level of reciprocal intra-industry trade in manufactures and equipment
(Tussie, 1987).
Agriculture was quickly removed from negotiations in the early 1950s. Metal commodities (and
subsequently agricultural commodities) were subject to their own specific arrangements outside
of G.A.T.T., with general output and pricing agreements to ensure medium-term stability of the
particular industry. Textiles were subject to separate negotiations (contrary to G.A.T.T.
principles) in the 1960s, under the Multi-Fiber Arrangement (M.F.A.). Starting with cotton
textiles in the late 1950s, the M.F.A. generalised protectionism in textiles (Salvatore, 1992:
Ch.5).
This treatment of agriculture and textiles marginalised developing countries from the G.A.T.T.
process. The United Nations became the focus of developing countries complaints, and the
United Nations Conference on Trade and Development (U.N.C.T.A.D.) was formed to pressure
for change. The advanced countries subsequently made some concessions in the form of
Developing country preferences, with concessional access of some imports to first world
markets.
The major beneficiaries of the G.A.T.T. system were thus the advanced industrial countries. The
United States, France and Japan, for example, have all acted to blend freer trade and protection
opportunistically to enhance national and specific interests. The post-War experience of the
move to freer trade has thus been more compromised than the experience under British
dominance a century previously.

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Moreover, both achievements were the product of a favourable context the relatively security
and stability of boom periods. Economists often offer a simple causal proposition that freer trade
was responsible for the post-War boom. Economists neglect that the causation was in both
directions. Trade liberalisation was as much a product of post-war growth as it was its source.
Remember that the first major instance of a movement to freer trade occurred in the midst of a
significant economic boom. Freer trade cannot be generated at will without sympathetic
conditions, in turn conducive to attracting support of governments for multilateral cooperation.
The Historical Significance of Assertive Trade Policy
What determines a nations approach to trade? Economists are used to thinking in terms of trade
being on natural lines, according to the Comparative advantage of each country in terms of
resources. Governments are supposed to play an accommodating role, in facilitating Free trade
for the mutual advantage of the populations in all trading countries. However, the historical
record indicates that governments have always played an active part in trade.
It is useful to examine the motives of governments in this arena, and the context in which
approaches to trade were developed. In particular, it is important to examine the occasions when
Free trade has been taken seriously, and the environments that were conducive to that
development.
At its most fundamental, trade policy embodies a political ambition to use a countrys level and
structure of trade as a vehicle for more rapid economic development. Trade policy is often
complemented by industry policy, to support or improve the capacity of domestic industries
(sometimes the two are indistinguishable). National governments may adopt an assertive trade
policy to advance their countrys standing internationally, or as a defensive measure to prevent
their populations standard of living going backwards from the assertive action of others.
Essentially, international competition involves governments as well as profit-oriented businesses,
and trade policy is an integral part of this competitive process.

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Implicit in the concept of trade policy is the presumption of a strategic underpinning. A good
example is provided by the Japanese approach to the acquisition of raw materials. Japans land
mass is relatively impoverished in terms of mineral and agricultural raw materials. Overseas
sourcing has been necessary for Japans fabled industrial take-off. Japans resources strategy first
took the form of colonial expansion colonising parts of the mainland (Manchuria, Korea) to
source mineral resources, and colonising islands to the south (including Formosa, now Taiwan)
for materials like sugar.
After defeat in World War II, Japans resources strategy has been continued by peaceful means,
but it has been just as assertive a ruthless commitment towards ensuring resources supply that
is both secure and at minimum prices. Australia has been on the receiving end of this strategy in
terms of Japans sourcing of coal (Colley, 1998). Japan has coordinated its purchases of both
thermal coal (for electricity) and coking coal (for steel) via a single bargaining agent, leaving
Australian suppliers to compete amongst themselves for a contract. Japanese companies also
invest in Australian mines to ensure a state of oversupply. Finally, the trading arm of Japanese
conglomerates organises and ships the commodities, on pricing arrangements determined
internally. Japanese trade policy towards raw materials supply is thus comprehensive.

Image source: joseffaligalevutes.blogspot.com

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CHAPTER 2
FREE TRADE

What is Free Trade?

It is the maxim of every prudent master of a family, never to attempt to make at home what it
will cost him more to make than to buy...If a foreign country can supply us with a commodity
cheaper than we ourselves can make it, better buy it of them with some part of the produce of our
own industry, employed in a way in which we have some advantage.

It was this insight by the 18th century economist Adam Smith which concisely explains the
seminal principle of Free Trade. Trade is one of the most essential economic activities in the 21st
century and no state can effectively stand to develop without actively taking part in it.
Globalization, especially after the Second World War has allowed businesses and nations across
the world to market their products and services with other economies leading to a rapid growth in
international trade. The development of communication and travel has ushered in an era of
countless new trends, services and commodities all with endless possibilities. All this has
resulted in a rise in human interaction and has led to the opening up of world economy. Trade
without restrictions has brought in the era of globalization and human advancement.

The main idea of free trade is that it follows a laissez-faire approach, with no restrictions on trade
and it is a type of policy that allows traders to act and transact without interference from the
government. Countries which engage in trade internationally without trade barriers form the
fundamental basis for free trade. It is an established fact that Global trade allows countries to use
their resources be it labour, technology or capital more efficiently. Free Trade encourages greater
efficiency among local establishments, leads to greater product choice, and price reductions
while encouraging local firms to expand and export. The main purpose of free trade agreements
is to allow faster and more business between the two economies so that they maintain the stream
of mutual benefit.

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Free Trade as a concept bases itself on the two theories of the Classical theory of Absolute
advantage by Adam Smith and the Comparative Advantage Theory by David Ricardo.
Smith, in his study recognized that fewer the impediments to trade, the richer everyone would
become. He criticized the royal charters, tariffs, cartels, monopolies and his opposition to
restraints on trade made Smith the progenitor of Free Trade. Ricardo expanded on the free-trade
idea of Adam Smith by explaining why international trade is essential. According to him, each
nation has a competitive advantage as everyone has something they do best and if they trade with
each other, both parties will live better.

Free Trade today is essential for any economys growth and survival. Maintaining international
trade relations not only brings economic benefit but also brings that economy closer to the rest of
the world both socially and culturally and almost all economies in the world today are dependent
on other economies for resources both human and material. The development of science and
technology has made the world smaller in terms of travel and better informed in terms of
information and this has led economies while being fiercely competitive to also be cordially
cooperative. Trade mechanisms like the NAFTA and WTO have been designed by the major
world economist to help in maintaining a healthy trading relationship between businesses or
economies.

A Brief History of Free Trade

The development of trade and its role in the development of the world economy is deep rooted
and goes back to the earliest of civilisations. The need to coexist and maintain trade relations
with other economies for goods and services was realised millennia ago by the founding fathers
of our great civilisations. Trade was a major component of not just the economy but also the
society and much was at stake in order to maintain trade relations with other nations and
economies. Economists who had advocated free trade believed that trade to be the reason as to
why certain civilizations prospered economically. This was illustrated by Adam Smith when he

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pointed out that increased trading had helped in the flourishing of not just the Mediterranean
cultures of Egypt, Greece, and Rome, but also of East India and China.
It was during the medieval ages when European nations such as England, France and Portugal
started competing and building trade empires across Asia. These nations recognized the potential
of the valuable spices and other exotic commodities found in India, China and other south East
Asian countries went after them. These traders and trading establishments were highly
competitive and they aggressively lobbied against trade restrictions. Most of the European Trade
Cartels succeeded in establishing massive trading ports complete with factories by influencing
the small kingdoms and their rulers using persuasive tactics and politics and amassed huge
fortunes in a very short time.
However, Free Trade has held more significance from the beginning of the 19th century when
trade was the engine of economic growth. The advent of capitalism and industrialisation along
with gold becoming the universal choice of currency led to many countries dropping restrictions
on trade.
While Britain maintained its position as the factory of the world, nations like United States and
Germany quickly benefitted from free trade and rapidly industrialized around this time. Many
liberals in Britain and United States came to believe that Free Trade promoted peace. The British
economist J. M. Keynes suggested that free trade so long as it was combined with internationally
coordinated domestic economic policies to promote high levels of employment, and international
economic institutions meant that the interests of countries were not pitted against each other.
This view was however temporarily put to rest with the advent of the First World War and the
subsequent collapse of Wall Street which led to collapse of many major world economies. The
Great Depression ushered in a new era of Protectionism with most major world economies
severing their Free Trade policies and reverting back to protectionist measures. This depression
continued into the late 40s and countries like Japan and Germany were reeling under severe
inflation and economic downturn. This forced comparatively stable economies like the United
States to open up their economies and lower their trade barriers.
The General Agreement on Tariffs and Trade (GATT) was formed in 1948 and it was the result
of 23 countries getting together to sign an agreement to reduce customs tariffs. The GATT
ushered in a new era of globalization and increased trade between the major economies of the

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world. This agreement was the first of the many agreements which were to follow and which
made an attempt to reduce trade barriers and protectionist policies and promote free trade. The
Uruguay Rounds from 1986 to 1993 were one of the most ambitious trade rounds and they are
directly related to the establishment of the World Trade Organization (WTO) in 1994. The WTO
super-ceded GATT and is now the highest international authority which looks after Free Trade
across the world. Other more regions bound free trade policies like the North American Free
Trade Agreement or NAFTA were also created after the 19 to assist in creating better trade.

The Advantages of Free Trade

A famous economist providing motivation about free trade accurately summed up the concept of
free trade in the phrase, "If you do something good for me, I will do something good for you."

In 1776, Adam Smith while questioning the mercantile assumption that a countrys wealth
depends on its holding treasure (Holding treasure is the amount of gold a countrys treasury has
rather than the amount of goods and services) said that a country had absolute advantage in the
production of a product when it was more efficient than any other country in producing it.
Therefore, Smith reasoned that if trade was restricted each country could specialize in products
that gave it a competitive advantage. This specialization would increase their efficiency as
Labour would be skilled by repeating the same tasks and all and long term runs would provide
incentives for development of more efficient working methods. In the 21st century, there are
many important reasons as to why voluntary exchange is good not only for the contracting
parties but the world as a whole. The first being that trade improves global efficiency in resource
allocation. A glass of water may be of little value to someone living near the river but is priceless
to a person crossing the Sahara. The bottom line being that trade delivers goods and services to
those who value them most. Next, trade allows partners to gain from specializing in the
producing those goods and services they do best and when producers create goods they are
comparatively skilled at, such as Germans producing beer and the French producing wine, those
goods increase in abundance and quality. Finally, trade allows consumers to benefit from more

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efficient production methods. For example, without large markets for goods and services, large
production runs would not be economical and large production runs, in turn, are instrumental to
reducing product costs therefore Lower production costs lead to cheaper goods andservices,
which raises real living standards. Free trade also fosters in a sense of competition and therefore
scope for innovation. These instances along with empirical evidence support the idea that nations
more open to trade tend to be richer than those that are less open. In a study conducted by
prominent economists Jeffery Sachs and Andrew Warner in 1970 to measure the relationship
between economic growth and international trade and how the openness of an economy helps
in its economic development, they found that while open economies grew at a rate of 4.49% per
year, closed economies only grew at a rate of 0.69% per year. This study clearly indicated that
free trade seemed to produce higher levels of economic growth and standards of living.

However, no idea, policy or concept is complete without its contrast and criticism and no policy
can ever be implemented without understanding the contrasting concept. Each concept holds true
in its own right and therefore it is absolutely necessary to understand every aspect of it to create a
complete picture. Protectionism is held in contrast to Free Trade and it is important to understand
the significance and development of it to help in increasing the efficiency of an economy.

Characteristic of Free Trade:

Tariffs
The most common characteristic of free trade is the lack of state tariffs on imports. A
tariff is a tax placed on incoming goods by the host country. it makes foreign goods,
therefore, artificially more expensive than domestically produced goods, giving the latter
a competitive edge.
Markets
Markets, not the state or even powerful economic actors, are empowered to make
decisions in free trade systems. If foreign goods are priced according to market norms,

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then the winner in economic competition is who makes the best product at the lowest
price. In protected trade, it often is the actor with the most political power who gets its
economic interests protected.
States
Free trade takes the state out of the economic equation. States are disempowered to make
any kind of economic decision concerning the global economy. Consumers and
companies are then empowered to make these decisions based on their preferences rather
than state policy.
Contracts
Markets are based on contracts between buyers and sellers. Therefore, the removal of the
state from economic decision-making means the dominance of contracts over state
regulations in global economics. In this case, free contracts are an important
characteristic of free trade. Protected trade, on the other hand, is international economic
activity controlled, at least in part, by the state.
Economics
Economics is at the center of free trade thinking. Politics is at the center of protected
trade. Therefore, any free trade regime thinks in terms of economic categories: efficiency,
markets and contracts. Protectionism thinks in terms of political categories: domestic
producers, powerful interests, state power.
Globalism
Free trade demands a world without borders. In an economic sense, the states of the globe
are irrelevant, only the demand of the global market has any economic relevance. Hence,
under free trade, the globe becomes progressively smaller as corporations and bankers
serve a global, rather than a national, market.


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Criticism of Free Trade

Economist Jagdish Bhagwati of Columbia University has been one of the most visible and
resolute intellectual advocates for free-market globalization, but lately he sounds a lot like Lori
Wallach, the brainy lawyer who leads Global Trade Watch. "The process of trade liberalization
is becoming a sham," Bhagwati wrote recently in the Financial Times, "the ultimate objective
being the capture, reshaping and distortion of the WTO in the image of American lobbying
interests."

Wallach and other leaders of worldwide popular dissent have been making the same argument
about bait-and-switch diplomacy for a decade. "Oh, absolutely," Bhagwati exclaims. "People like
Lori Wallach are right." The multinational corporate interests essentially hijacked the pure "free
trade" principles Bhagwati espouses and turned "free-trade agreements" into their own agenda
for a densely layered legal codeinvestment rules that impose a straitjacket of do's and don'ts on
developing-country governments.

The rights of foreign capital and corporations are to be expanded; the rights of sovereign nations
to decide their own development strategies steadily eliminated. A country must not require
multinationals to form joint ventures with domestic enterprises. It must not limit foreign
ownership of its natural resources. National health systems, water systems and other public
services must be open to privatization by foreign companies. Underdeveloped countries must,
meanwhile, enforce the patent-rights system from the advanced economies to protect drugs,
music, software and other "intellectual property" assets owned by wealthy industrialists. Any
poor nation that dares to resist the WTO rule will face severe "sanctions"huge cash penalties
and possibly de facto expulsion from the trading club.

"The developing countries are scared out of their wits now," Bhagwati says, "because they don't
understand what they're being forced to sign. The agreements are going way outside the trade

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issues and involve a helluva lot of things like your access to oil, your access to intellectual
property and capital controls. When I looked through the investment agreements, it was worse
than reading my insurance policy for the fine print. I couldn't make anything out of it, and I'm a
reasonably informed person, a pretty smart economist as they go."

Exactly.Obfuscation is power. The politics of trade resembles a maliciously lopsided power play
in which the wealthiest industrial nations press the weak to accede to their terms or else get
nothing back at the bargaining table, and very possibly lose their access to foreign capital or
development aid. Trade ministers from poor countries naturally resist, but they don't have deep
squads of corporate lawyers to argue the fine points and they don't want to be the troublemaker
accused of blowing up the trading system.

I fully support free trade, and always will if not on economic principles then on the moral
principle that everyone should have the freedom to make their own economic decisions, and
compete on a level playing field. But if free trade really does benefit everyone in the long run,
then American corporations are actually harming themselves with their protectionist
measures. That is bad business, and not in the best long-term interest of the shareholders. It's
funny that capitalists, of all people, would be afraid of competition.


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CHAPTER 3
PROTECTION

What is Protectionism?

While Free Trade has helped the world economies to open up and develop, it is not without
criticism and contrasts. The concept of protectionism and protectionist economy does exactly
what Free Trade refrains from doing. Protectionism can be briefly explained as an economic
policy that restrains trade between states to "protect" businesses and workers within a country by
restricting or regulating trade with foreign nations it is designed to discourage imports, and
prevent foreign take-over of local markets and companies. This is achieved using protectionist
policies and methods such as imposing tariffs on imported goods, restrictive quotas on imports,
Anti-Dumping legalisations against dumping by foreign corporations, Subsidies, both direct or
indirect given to local firms to promote their growth so as to counter foreign encroachments,
Export Subsidies, used to increase exports, Exchange rate manipulations used to lower the value
of the currency to achieve an improved trade balance and a variety of other restrictive
government regulations.

A Brief History of Protectionism

Ever since the beginning of organised trade there have existed some economic ideologies and
concepts which even to this day play a vital role in its functioning. Protectionism is one such
economic concept that has been used at almost every step of trading history. No economy has
ever avoided using protectionist measures or policies at one time or another to maintain its
internal trade balance. Protectionism is closely related to mercantilism which holds that the
prosperity of a nation is dependent upon its supply of capital and that the global volume of
international trade is "unchangeable". Also economic assets are represented by bullion held by
the state that is best increased through a positive balance of trade with other nations. Most

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European nations during the medieval ages from the 16th to the 19th century followed
mercantilist policies and it fuelled European imperialism and its many wars. However, by the
late 18
th
century mercantilism began to fade away and it is today almost rejected as whole by
Economists. Protectionism on the other hand is much more evolved form and it is sometimes
used even today by countries to protect their economies from excessive encroachments by
outside businesses and economic influence.

The last time protectionist measures were adopted was during great depression when most major
economies pulled down their trade shutters and focused more on internal economic recovery and
employment generation. The recent economic downturn has led many countries to rethink their
international trade policies and tighten their trade regulations. However from past instances in
history, free trade regulations and the benefits derived from it outweigh the benefits derived from
being a closed protectionist economy and therefore trade regulations will be modified only to a
certain extent if any.

The Advantages of Protectionism

Protectionism as a concept is fundamental part of trade dynamics and many economies of the
world recognize it potential. However some factors of protectionism stand out in the present day
scenario and still hold a firm place in todays free trade dominant trade pavilions. There exist in
every economy some aspects which find the need to be protected from excessive and lenient
trade policies. Infant industries may need temporary tariffs and quotas to survive against
established foreign producers if these firms are producing new-technology goods such as
computers and mobile phones. Dumping and Unfair competition in the form of subsidies and
government benefits to foreign firms may result in local businesses losing out and protectionist
measures will help local, small-scale firms build a base for themselves. Protectionist policies of
the government may also help in improving their balance of payment as there is more export and
lesser import. This also protects declining industries from creating further structural
unemployment.

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In fact, one of the major advantages of protectionist measures is it helps in maintaining and
generating the employment of the country. Employment opportunities of an economy are
generally reduced when there is rampant establishment of foreign companies as people from
those foreign economies take away the jobs of this economy. Strict trade restrictions help in
maintaining a balance in the internal economy of the nation and ensure that the people living in
that country are not deprived of their opportunities. Unemployment, Underemployment due to
free trade policies is best highlighted in developing countries where Workers are under paid and
lack any kind of union and legal representation and protection are forced to take jobs that exploit
them. It is no surprise that Global companies often indulge in exploiting labor in developing
nations as they are easily targeted and influenced and because these nations rely on export based
industries for economic generation.

The Disadvantages of Protectionism
In the long term, trade protectionism weakens the industry. Without competition, companies
within the industry won't innovate and improve their products or services. There's no need to.
Eventually, consumers will pay more for a lower quality product than they would get from
foreign competitors. Job outsourcing is a result of declining U.S. competitiveness, itself is a
result of decades of the U.S. not investing in education. This is particularly true for high tech,
engineering, and science. Increased trade opens new markets for businesses to sell their products.
The Peterson Institute for International Economics estimates that ending all trade barriers would
increase U.S. income by $500 billion.
Increasing U.S. protectionism will further slow economic growth and cause more layoffs, not
less. If the U.S. closes its borders, other countries will do the same. This could cause layoffs
among the 12 million U.S. workers who owe their jobs to exports.


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Methods of Protectionism

Tariffs
A tariff is a tax on foreign goods upon importation. Tariff rates vary according to the type of
goods imported. Import tariffs will increase the cost to importers, and increase the price of
imported goods in the local markets, thus lowering the quantity of goods imported.

Impact of Tariffs
Tariffs lead to higher prices for imports and thus Imports fall
Domestic consumers have to pay higher prices and buy less.
Domestic producers gain, as they get higher prices and sell larger quantities. As we can
see in the diagram domestic production increases from 0Q1 to 0Q2. Moreover their
revenue increases from PwQ1 to Pw+TQ2
Higher domestic production leads to increased domestic employment.
Government now gains from tariff revenues, which can be represented by e in the
diagram
Tariffs are regressive in nature and thus worsen income distribution.
Exporting countries lose due to fall in exports.

Quotas
An import quota is a type of protectionist that sets a physical limit on the quantity of a good that
can be imported into a country in a given period of time. This leads to a reduction in the quantity
imported and therefore increases the market price of imported goods. Quotas, like other trade
restrictions, are used to benefit the producers of a good in a domestic economy at the expense of
all consumers of the good in that economy.


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Effects of Quotas
Domestic production increases from 0Q1 to 0Q1+Q3Q4.
Domestic consumption fall from 0Q2 to 0Q4
Imports fall from Q1Q2 to Q1Q3
Consumers end up paying more. Before quota was imposed they were paying Pw, but
now they are paying Pw+Quota
Domestic producers gain as they sell more at higher prices (Pw+Quota)
Domestic employment increases as domestic production rises.
Government gets quota revenues
Domestic society is worse off due to decrease in consumption and production by less
efficient producers
Exporting countries lose revenue
Quotas result in global misallocation of resources as goods are being produced by
inefficient producers.
J and K represent the dead weight loss of welfare to the society, as J represents
production by inefficient producers and K represents the loss of consumer surplus.

Subsidies
Government subsidies (in the form of lump-sum payments or cheap loans) are sometimes given
to local firms that cannot compete well against foreign imports. These subsidies are purported to
"protect" local jobs, and to help local firms adjust to the world markets.

Effects of Subsidies
Consumption of the good is not affected. Consumption remains at Q3.
Taxpayers lose as the tax revenue collected is being used for subsidies
Domestic producers gain as the production increases from 0Q1 to 0Q3.
Employment increases as more is being produced domestically.

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Exporting countries are worse off
Global misallocations of resources as inefficient producers are now producing goods.

Administrative Barriers
Countries are sometimes accused of using their various administrative rules (eg. regarding food
safety, environmental standards, electrical safety, etc.) as a way to introduce barriers to imports.

Embargo
An embargo is the prohibition of commerce and trade with a certain country, in order to isolate it
and to put its government into a difficult internal situation, given that the effects of the embargo
are often able to make its economy suffer from the initiative.

Anti-dumping legislation
Supporters of anti-dumping laws argue that they prevent "dumping" of cheaper foreign goods
that would cause local firms to close down. However, in practice, anti-dumping laws are usually
used to impose trade tariffs on foreign exporters.

Arguments in favour of protectionism

Infant industry argument
It is argued that government should go in for protectionist measure to protect infant industries,
or else they will not get an opportunity to survive due to international trade.

Efforts of a developing country to diversify
Developing countries need to protect industries in which they want to diversify.


Page 21

Protection of employment
Protecting domestic industries also means protecting domestic employment.

Source of government revenue
Tariffs form a good source of revenue for governments.

Strategic arguments
it means use of a tariff to protect military capability. The idea is, to consume the goods of our
country to promote the national industry and so, in the case of war we don't have to buy the
products in a foreign country and our industries have the capacity to produce all the goods that
our country need. We want tariffs to reduce the dependence on international resources.

Means to overcome balance of payments disequilibrium
High imports as compared to exports might lead to severe balance of payments issues.
Government might resort to protectionist measures such as tariffs and quotas to restrict import
and thereby control the balance of payment disequilibrium.

Anti-dumping
Dumping is when manufacturers export a product to another country at a price either below the
price charged in its home market. This harms the domestic industry and employment. The
importing country might resort to protectionist measures such as tariffs to control dumping of
these goods.

Arguments against Protectionism

Misallocation of resources
It leads to global misallocation of resources, as it supports inefficient producers and in certain
cases (tariffs and quotas) consumer surplus is scarified.


Page 22

The danger of retaliation and trade wars
Continuous protectionist measures by a country might lead to retaliation of other countries and
they might also put protectionist measures on the imports.

The potential for corruption
Putting administrative controls might also lead to corruption.

Increased costs of production due to lack of competition
Constant protection to the domestic producers and lack of competition propagates inefficiency
and lack of initiative to control cost.

Higher prices for domestic consumers
As we can see due to tariffs and quotas domestic consumers end up paying more.

Increased costs of imported factors of production
Imported goods become expensive which might also lead to imported inflation.

Reduced export competitiveness
Continuous protection to domestic industries (such as subsidies) might make them inefficient in
terms of cost and technology. In the long run they might become uncompetitive in the exports
market.


Page 23

CHAPTER 4
DISTINCTION BETWEEN FREE TRADE AND PROTECTION

The Distinction between Free Trade and Protection

Observing the various characteristics and trends set by both Free Trade and Protectionism, we
can clearly draw a line between the two concepts. Clear distinctions can be sought observing the
history and advantages of the two concepts and it can be observed that both concepts contrast
one another other and ones advantage can be pictured as anothers disadvantage. For instance,
while free trade helps in the growth of a developing economy through foreign investment,
Multinational corporations may also exploit the workforce because of their dependency on job.
However, with contrasting principles comes the task of balancing them. No economy can
successfully survive on either of the ends and it needs to find a suitable middle ground based
upon its prevailing internal factors to effectively benefit and prosper. It is therefore trade policies
which help in maintaining this balance that have to be created to help in the advancement of an
economy.

Image source: http://digital.library.lse.ac.uk/objects/lse:gev962ban

Page 24

Liberal Party poster clearly displaying the differences between economies based on Free Trade
and Protectionism. The Free Trade shop is full to the brim of customers due to its low prices
whilst the shop based upon Protectionism has suffered from high prices and a lack of custom.

Free Trade v/s Protectionism

No country in the world is self-reliant and has to depend on other nations to meet the demands of
its infrastructure and economy. Trade between countries is as old as civilizations but of late there
has been a debate over the pitfalls of protectionism and the benefits of free trade between
countries. Before differentiating between free trade and protectionism, we need to learn a bit
about protectionism.

What is Protectionism?

Protectionism refers to policies, rules and regulations that help a nation place barriers in the form
of tariffs while trading with any other country. It is sometimes also a ploy by a country to
safeguard the interests of its domestic producers as cheap imported commodities tend to shut
down factories making that commodity inside the country. Though at times protectionism is
adopted to serve national interests, there are times when countries cry foul as they face non-
economic tariffs. For example, carpets made in India are world famous and India exports them to
many countries including Europe and the US. But suddenly US chose to place barriers in this
trade citing use of child labor in the manufacture of carpets in India.

One of the easiest ways to reduce imports of commodities is to raise the price of imports by
putting in place tariffs. This helps domestic producers as they remain competitive in the domestic
markets. Other ways of protectionism are to place quota restrictions on commodities so that the
quantity entering the country is miniscule which does not affect local producers.
What is Free Trade?

Page 25

The concept of Free trade on the other hand refers to a situation where there are no barriers in
trade between two countries. This not only helps both the nations, it also paves the way for
cooperation and trade in more areas and removing mistrust and ill will that is always there in an
atmosphere riddled with sanctions, tariffs and embargos. Free trade does not take place overnight
and this is why nations are entering into economic pacts and agreements to slowly and gradually
remove all such artificial tariffs. Free trade encourages transparency and healthy competition.
Nations have come to realize that others can be superior to them in production of certain goods
and services while they can be superior in other areas.
To help nations of the world prosper through international trade, GATT has paved the way for
World Trade Organization that sets the guidelines for international trade and puts into place a
robust mechanism for the resolution of disputes between member countries.

Free trade is an ideal situation while protectionism is the order of the day in international trade

Protectionism takes many shapes and sometimes, countries crying foul as they are made to
suffer hardships cannot even prove it

WTO has been set up to pave the way for free trade by gradually removing all artificial barriers
between member countries

Free trade encourages healthy competition whereas protectionism leads to jealousy and ill will.


Page 26

CHAPTER 5
INDIA AND ITS FOREIGN TRADE POLICY

The world in twenty first century is remarkably different from the cold war period. The end of
ideological clash and strategic competition between the superpowers which had tremendous role
in accentuating conflicts across the world generated new hope for building a peaceful and co-
operative world order. Instead there is a great deal of uncertainty in the emerging global order.
New conflicts and issues have surfaced in the form of ethnic conflicts, refugee problem,
environmental degradation, terrorism; etc. Foreign policy of a country is determined by the
times in which it is conducted. In twenty-first century, foreign policy of India is going to be very
different from what it was when country became independent. At that time there were well-
known two blocs, the USA and the USSR. Indias foreign policy rightly did not wish to become
a part of either of two blocs and evolved what is known as a non-aligned group of nations. The
world politics after 1991 emphasizes the need for a fundamental rethinking in Indias foreign
policy.

India in the early twenty-first century has become a focus of international attention more than
ever before. In the pyramid of world powers in 1947, India was perhaps at the rock bottom.
However, within a short span of three or four decades India had pushed forward its position and
became a most developed country among the developing countries. India is the seventh largest
country and next to china having the highest population in the world. It is well marked off from
the rest of Asia by mountains and seas, which give the country a distinct geographical identity.

Foreign policy is an instrument at the disposal of a country to protect and promote its national
interests. The core of the national interest is constant-defend the territorial integrity and
sovereignty, enhance the economic and social well-being of the people, promote opportunities
for profitable trading relations with other countries, and exploit the soft power through
propagation of the cultural assets. While the national interest would be forever, its content will

Page 27

vary with time and circumstances. It follows that the policy has to be flexible and must keep in
tune with changing international, as well as national, environment. This paper is a modest
attempt to analyze Indias foreign policy as an instrument for protecting national interest, what
success it has got and what challenges it is facing in the 21st century.

India has not been far behind in reaping the benefits of globalization and it has after the 1990s
or the so called Post Liberalization Era extensively participated in trade with the other
economies of the world. Improved Export Import policies along with lower tariffs and the
establishment of Special Economic Zones (SEZ) has attracted a huge amount a foreign
investment and that has led to the rapid development of both rural and urban areas. The IT boom
and India featuring as the most potential investment destination has ushered almost every major
multinational corporation to invest heavily in India. I However, India while steadily opening up
its economy has still maintained restrictive investment and trade norms. It has retained its power
to protect when needed and this has been very effective in cushioning the impact of the recent
economic downturn. Nonetheless, the governments stand on trade and investment policy, in
recent years has displayed a marked shift from protecting producers to benefiting consumers.
This is reflected in its Foreign Trade Policy for 2004/09 which states that, "For India to become a
major player in world trade ...we have also to facilitate those imports which are required to
stimulate our economy." It is clear that India is now aggressively pushing for a more liberal
global trade regime, especially in services. For instance is that it has assumed a leadership role
among developing nations in global trade negotiations, and has played a critical part in various
trade negotiation rounds including the ever important Doha negotiations.

India has been aggressively moving ahead on the global stage and has signed various trade
agreements with its neighbours and is seeking to establish trade relations with new ones
including many East Asian and European countries. Some of the important existing trade
agreements include the India-Sri Lanka Free Trade Agreement, India-Nepal Trade Treaty, and
the Comprehensive Economic Cooperation Agreement (CECA) with Singapore and Framework
Agreements with the (ASEAN). Being an active member of the WTO, India also has trade
agreements with China, South Korea, Brazil and many such major economies of the world.

Page 28

Trade pacts with the European Union and United States are also in the pipeline. The 123
Agreement with the United States in 2008 can be considered as a founding stone to renewed
trade relationship with the US.

It is therefore evident that India is very much a vital player in world economics and trade and it
has its GDP and growth indicators to back it up. India is one of largest and fastest growing
economies among the developing world and it is considered as one of the largest markets for
commodities and services from around the world. With reforms to create a more flexible trade
policy, Indias economy is bound to grow at a faster rate and lead the country to greater heights
of economic and social prosperity.

Image source: www.indiamart.com

There are three main determinants of foreign policy
People, history and geography:

People- identity, values, aspirations and skills
History- circumstances, opportunities and constraints of the past
Geography- location, resources and neighbourhood

Page 29

India was an old civilization with great cultural resources which, however, was stratified
socially, economically and politically. Three major developments changed the character of India:
The direct involvement of the masses in the freedom movement in the first half of the 20th
century with independence in 1947 and, in spite of the Partition, an identity as a secular nation.
The ambition reflected in the Preamble of the1950 Constitution to form an egalitarian, secular,
socialistic-type just society focused on the social and economic development of the people and
politically united into a democratic republican nation.

The economic reforms of 1991, liberating the trading and entrepreneurial spirit of the people
The near coincidence in time of Indian independence and Partition, the beginning of the Cold
War in the aftermath of the World War II and the Communist victory in China created a difficult
situation for India. It led to a foreign policy of non-alignment as a means of retaining strategic
autonomy combined with an effort to create solidarity of Asian/ developing countries as a
political support base.

In the wake of the Cold War, Indias pro-Soviettilt and Pakistans total support for the West as
well as Chinas occupation of Tibet, helped to exacerbate the neighbourhood tensions. In spite of
trying to settle peacefully through the UN the Kashmir issue created by Pakistans aggression,
the issue got converted there into an Indo-Pakistan dispute. Two wars, one in 1965 and the other
in 1971, the latter changing the political geography of the sub-continent, and the respective peace
agreements signed in Tashkent and Simla failed to resolve the problem. Subsequently, Pakistan
started using terror as a state policy to try to force India to submit as part of its proxy war
strategy.

India China border dispute arising out of an assertive China unwilling to accept imperialist-
imposed borders, was not contained by the Panchsheel Agreement whereby India accepted Tibet
as an autonomous part of China without demanding any tangible quid pro quo, such as
acceptance of the McMahon line as the boundary. In fact, the offer of refuge to Dalai Lama in
India in 1959 heightened Chinese suspicions, the breakdown of negotiations, and Indian forward

Page 30

policy, among other things, saw China teach India a lesson by attacking in 1962 which led to
a humiliating military defeat for India. Chinese occupation of Aksai Chin and claims on Indian
Territory like Arunachal Pradesh are unresolved.

Indias Hindu rate of growth meaning growth dependent on natural biological growth, as
Hinduism does not practice conversion, rather than any pejorative reference to the religion or its
adherents of around 3.5 % economic growth rate vis-a-vis our population growth rate of
around 3% during that period, for most of the first half of the twentieth century under the British
and marginally better from 1950s to 1980s meant in per capita terms almost nil growth rate
implying very little capacity for national accumulation. The problems of illiteracy, disease and
poor infrastructure were other constraints. This led to command economy policies (e.g., Second
Five year Plan, etc). These meant not only ideological distaste for India but also its lack of
attractiveness as a profitable trade and investment partner for the US business. Combined with
Indias pro-Soviet tilt, it implied less than cordial relations with US. This was seen during the
Bangladesh War and in the aftermath of Indias peaceful nuclear tests in 1974 when the US put
in place a very strong nuclear non-proliferation regime both at home ( through Nuclear Non-
proliferation Act, 1978, Pressler and Symington Amendments, etc.), and internationally through
IAEA and NSG mechanisms.

The collapse of the Soviet Union in 1991changed the prospects for India. Forced to deal with a
uni-polar world, India made new approaches such as its Look East policy towards the miracle
economies of ASEAN.. The rise of Indian software globally as well as the rise of Indian-
Americans in US and the market-oriented reforms in India combined with freeing US from
seeing India through anti-Soviet prism gave a positive fillip to Indo- US relations. The end of the
Cold War also reduced the importance of Pakistan in US eyes. Even the nuclear tests of May,
1998 which made India declare itself as nuclear weapon country which initially led to US
sanctions, did not prevent a change of approach on the part of the US noticed during the Kargil
War with Pakistan in 1999 and reflected through the 2000 with President Clintons visit and the
lifting of these sanctions in 2001. Relations between India and US can be said to have really

Page 31

turned around with President Bushs announcement in July, 2005 that the US would offer help to
India in civilian nuclear energy. This led to the Indo-US Civil Nuclear Agreement.

The importance of the Indo-US Nuclear deal lies not merely in that it allowed supply of nuclear
fuel and access to nuclear technology, important as they are for Indias economic development,
but also in that it was contrary to the stipulations of the Non-Proliferation Treaty (NPT) and,
more significantly to the entire US non-proliferation efforts, domestically and internationally, in
the wake of Indias 1974 test. Furthermore, it was also considered to be a one-time exception
only for India. It meant that in the eyes of the most-powerful nation, India had arrived.
Furthermore, we share considerable common interests with the US and have a lot to gain from
our partnership with them. However, we should not be carried away by any Hindi-Amreeki
Bhai-Bhai euphoria. We need to keep in mind the possibility of our being co-opted against
China and nor can we afford US and China ganging up against us. Since it is also unlikely that
we will side with the Chinese against the US, it would be in our interest to have a subtle trilateral
balancing interaction among India, China and the US.
At the same time, the increasing radicalisation of Pakistan and its near failed state situation poses
a threat to India and, indeed, to the rest of the world. In particular, the discovery of Osama bin
Laden in Pakistan among other events has rather adversely affected Pakistans image in the
world and the economic support that it can expect from the external world.

The perception of Indias rise in the eyes of the external world is also visible in its economic
growth potential. With economic growth consistently in the range 7 to 8 % and even touching
9% in the three years before 2008, averaging over the last twenty years nearly 8% growth rate
and a per capita average growth of over 5%, as the population growth rate had dwindled to less
that 1.6%.This also seen in the savings rate rising steadily from less than 10 % until 1955, to
around 33% over the last several years. Combined with the demographic dividend in the coming
decades, India economic growth rate is expected to overtake even Chinas. The famous BRIC
reports of Goldman Sachs also corroborate the great potential for Indias rising economic stature
in the coming years and decades. India is now in G-20. However, India is still the poorest in G-

Page 32

20 and is expected to face increasingly acute scarcity of land, water and energy resources as well
as environmental problems.

The fact that three out of the top four economies by 2050 would be Asian- China, India and
Japan-, the other being the US, underscores the shift of economic power from the West to the
East and the concomitant likely political power profile. It would also bring into focus
developmental models based on authoritarianism versus democracy as well the importance of
soft power. After all, India has right from the start been a model for other developing counties as
what is possible in an open democratic governance system.

Overall, with the collapse of the Soviet Union in 1919, the on- going decline of Europe and the
recent euro-zone crisis sharply denting the dream of United States of Europe, the several
hundred years era of European domination is ending. Depending upon our leadership, India may
rise to be among the top three global powers. But a global power status, including a permanent
Security Council seat, without an inclusive growth at home, dignity and security for all its
citizens cannot be our final goal.

India and its relation with super powers

The collapse of the USSR, this was close ally to India during cold war; one of the
greatest challenges that India faced to make a balance relation with super powers. India
needed to determine its policies towards the other global powers like America, China,
Russia, Japan and European Union. Indias main foreign policy objective is to achieve
global power status. It will however, depend greatly on its relationship with the US, and
the other superpowers, to attain this. The dynamics of Indias relations with each of the
other five powers will determine its global power status.

It was major challenge for India in the 21st century to keep the United States (US) as
the focal point of its new foreign policy. The Indian delegation pointed out that, after the
end of cold war, India was willing to diversify, and also to expand economic,

Page 33

technological, cultural and educational relations with US.7 The main reason for this is
that close relations with the US will help to convince the international community that
India is truly a global player. India and the US have been cooperating recently in several
areas including in defense and the technology. The highlight of their cooperation in
recent times has been the civil nuclear energy cooperation deal that has been signed
between both countries. The civilian nuclear deal is a positive development in Indo-US
bilateral relations, there is still a need for India to carefully man oeuvre its foreign policy
to manage ties with US. The Indo-US bilateral relationship progress through the next
step in strategic partnership initiative (NSSA) is also notable, as it is believed to lead
towards significant economic benefits for both countries and improve regional and
global security. America and India agreed to expend co-operation in three specific areas
viz. Civilian nuclear activities, civilian space program and high technology trade. The
123 nuclear treaties was historical event in confidence building for both countries.

So, it is evident now that the US-India relation has progressed remarkably in the post-
cold war period. 9/11 terrorist attack reinforced a perception of a broader political and
strategic similarity of interest pulling India and the US together. Some another pull
factors, such as, belief in democracy and democratic values, peace building and co-
operate with United Nations are also bring India and the US very close.

Besides the US, China is another superpower and playing an important role in world
politics in general and particular in Asia. Chinas rise poses challenges to India to
achieving its foreign policy objectives. India and China found themselves as a rivalry,
competitor and co-operator in twenty first century. They are rivalry about the border
issues, competitor in market economy, for influence in Asian politics, not only in ASEAN
but also in south and west Asia. There are so many issues in world politics, on which
both countries found them in co-operation, such as, in south-south dialogue, for new
economic world order, energy security, environmental issues and both are against to
protectionism.


Page 34

Both Japan and Russia are strategic partners of India. Russia has been an important
supplier of defence equipment and technology and will grow in importance to India with
the current global shortage of oil and gas expected to exacerbate in the coming years,
energy security will become an important facet of countries foreign policies, including
Indias. As such, it is important for India to not only secure access into key energy
markets but also to diversify its sources for oil and gas so as to reduce its dependence
on a particular supply. Relations with Russia continued to mature and involved a long
standing multidimensional approach involving security, military, and economic links.

Another domain of opportunity for the Indian foreign policy is growing interaction with
European Union (EU). India has a strategic partnership with EU. The most significant
aspect of this partnership is that India is only the fifth country besides the US, Canada,
Russia and China with whom the EU has established such equation. This partnership
launched in January, 2005 in various areas; such as, trade and investment, protection
for intellectual property, co-operation in science and technology, education, terrorism
and democratization and decentralization of UN. EU and India should hold continuous
dialogue on organizational and institutional restructuring and reform of the United
Nations in particular. This quite good relation is consequences of Indias vibrant
democratic institutions, emerging economic power and increasing global status.


Page 35

CHAPTER 6
THE GLOBAL PERSPECTIVE ON INTERNATIONAL
TRADE

As highlighted earlier, globalization had enhanced and renewed the will of the economies of the
world to trade and benefit from each other. Major leaders of the world economy like the United
States of America, Japan and Germany have all aggressively participated in world trade and have
benefitted enormously from it. The United States and the European Union are the most active
advocates of Free Trade and they have benefitted enormously by limiting their trade barriers.
Even the latest economic collapse has only acted as a speed breaker in continuing and expanding
trade relations. With signs of recovery around the corner, the major capitalist economies of the
world are beginning to resume their trading activities with the same pace as was observed before
the economic collapse. The European Union or the EU and the United States with their
aggressive trade pacts such as the NAFTA for the Americas and internal trade pacts and
standardization of currency for the EU have permitted these economies to trade with virtually
nonexistent trade barriers that have allowed these countries to expand their industries and
commodities all over the globe.

China, too after its gradual opening to trade has probably the most aggressive participant in
global trade. International Trade has resulted in unprecedented rates of growth and China is the
most important future super power of the world. One of the most significant steps China had
taken towards Free Trade was to finally join the WTO in 2001 after 15 years of negotiations.
This resulted in major economies like the United States, France and Germany investing heavily
in China. China is now the preferred destination for most investors and it stands to overtake the
United State as the worlds largest Economy in a few years. The World leaders at the recent G8
talks at LAquila, Italy called for attention towards the growing Global Food Crisis and
suggested a possible review of the current free trade policies towards the production and trade of
food grains. Agricultural development has taken center stage at world economic summits after
severe food shortages in spite of sufficient production. Discrepancies in the allocation and

Page 36

unethical trade practices of many business and economies have come to light following this and
a call has been sounded for world economies to tackle this problem quickly and efficiently.
While some call for international trade and reduction in existing trade barriers to tackle this
problem, others argue that excessive trade and unethical trade practices arising out of free trade
such as dumping to be at the root of the issue. Only a concentrated study of the situation and an
honest effort by the major world economies into this problem can determine and subsequently
tackle the actual cause of the growing crisis.

Image source: www.ips-dc.org


Page 37

CHAPTER 7
CONCLUSION

Why Free Trade is more popular that Protectionism in the 21
ST
century.

Societies that enact free trade policies create their own economic dynamism which help in
fostering a sense of freedom, opportunity, and prosperity that benefits every citizen. In recent
years, many world nations have demonstrated the power of this principle. For instance, by
breaking the cycle of poverty, the most impoverished countries of the world can begin to create
their own dynamic toward prosperity.

Foreign policy is changeable; it changes with time and circumstances. With the end of cold war,
world politics became totally change and many challenges emerged in front of nation-states in
terms of their foreign relations. Indias policy planner brought changes in foreign policy
according to changed world scenario. With her long-term and short-term national interest, Indias
foreign policy becomes closer to realistic approach. But it is hard to say that, the idealistic
components of Indias foreign policy are just irrelevant. In the new form, colonialism and
imperialism are exist in the world, pseudo war, drug trafficking, nuclear armaments and other
threats to human security are incredibly grown. To eliminate these problems, the idealistic
components of Indias foreign policy are relevant.

Since the end of cold war, India has been deepening its relations with super powers. US become
focal point of Indias foreign policy. Although it is necessity of age that, to make closer relation
with super powers but Indias tend to US is questioned to its independent foreign policy. For
instance, Indias vote against Iran in IAEA. While India has historical relation with Iran. Due to
this the Indo-Iran gas pipeline project has been failed. Such kind of diplomatic failure will be
stands the barrier in the way of Indias energy security process.


Page 38

The end of the Cold War and the growing impacts of globalisation are also making India redefine
its position and role both at the regional and at the global level. Since the economic liberalisation
of the 1990s, which lead to current growth rates of 8-9 percent annual, Indias global presence
has been steadily visible. Economic development would require energy security. Improving
energy security and energy conservation should be top priorities of India with addressing
environmental safety net.

Nevertheless, despite all the evidence to the contrary, the opponents of free trade will continue to
espouse the old arguments like that of "the jobs created by globalization are often less sustaining
and secure than the livelihoods abolished by it in developing nations. Such claims presuppose
that some sort of agrarian utopia previously existed in these countries and that their peoples will
not reap the benefits of economic development. To argue against the development carried by
technology and innovation is akin to arguing that the United States and Europe, to cite just one
example, were better off before the Industrial Revolution. The Revolution brought freedom of
movement and increased opportunity to all economic levels of society all over the globe. Only,
some nations derived more benefit quickly while others took more time to stabilize and reap its
benefits. A comparison of the economic growth between China and it break away neighbour
Taiwan illustrates this idea. The Taiwanese government in the 1960s chose to institute
widespread reforms to guarantee private property, establish a legal system to protect property
rights and enforce contracts, reform the banking and financial systems, stabilize taxes, distribute
public land to individuals, and allow the market to flourish. The Real GDP per capita of Taiwan
and China was compared and tracked for the next three decades.

For India, Post Liberalization with reduced trade barriers and increased foreign investment has
set the stage for social and democratic progress of a magnitude that would have been impossible
earlier and although as history suggests that this new era of market globalization may well be
accompanied by new problems for which the solutions will once again lie in the power of human
ingenuity and innovation. Globalization has presented the world with an unprecedented level of
opportunity for people to achieve economic freedom and greater prosperity.


Page 39

BIBLIOGRAPHY

AUTHURS:
Dr. Evan Jones
Walter Johnson
Kimberly Amadeo
Rob May
Ambikesh Tripathi
Ambassador Balkrishna Shetty

WEBSITES:
www.businesspundit.com, criticism of free trade, archive economics by Rob May on
September 8
th
, 2003.
www.differencebetween.com, difference between free trade v/s protectionism, by Olivia on
May 13
th
, 2011.
www.dineshbakshi.com, methods of protection.
voiceof.india.com, Indian foreign policy problems and prospects, by Ambassador Balkrishna
Shetty.

URL LINKS:
http://www.nationalobserver.net/2000_autumn_109.htm
http://voiceof.india.com/lectures/indian-foreign-policy-problems-and-prospects/5386
http://www.academia.edu/783270/Dynamics_of_Indias_foreign_policy

Page 40

http://www.dineshbakshi.com/ib-economics/international-economics/157-revision-notes/1908-
floating-exchange-rate
http://www.businesspundit.com/criticism-of-free-trade/
http://www.scribd.com/search-documents?page=8&query=free+trade+vs+protection
http://www.differencebetween.com/difference-between-free-trade-and-vs-protectionism/

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