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IMPACT OF A MORE PROTECTIONIST TRADE POLICY FOR

A DEVELOPING AND DEVELOPED ECONOMY
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Table of Contents
Introduction ................................................................................................................................ 3
Significance of Free trade .......................................................................................................... 3
Critical analysis of the impact of protectionist trade policy .......................................................... 4
Final viewpoint ........................................................................................................................... 4
Conclusion ................................................................................................................................. 5
Reference list ............................................................................................................................. 7
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Introduction
Protectionist trade policy is the policy applied by the Government of every country to favour the
domestic industry thereby reducing the competitiveness and the influence of the foreign imports.
Protectionist policy on trade is mainly aimed at making imports costlier by imposing barriers such
as tariffs and quotas on imported goods. Moreover, factors relating to environmental factors also
influence the Government of a country to impose restrictions on free trade. In this assignment, the
focus is being made on studying the impact of protectionist trade policy for developing and
developed countries like India and U.S.A respectively and critical analysis of its impact on them
has also been discussed and along with it the final viewpoint of the topic has been provided. Aim
of this study is to explore difference made by privatization in developing and developed country.

Significance of Free trade

Free trade causes specialization in international trade as it encourages the countries to produce
goods on which they are specialized. It is because of the free trade policy between the countries
that one country gains a comparative advantage over the other country. Free trade leads to the
creation of choice by strengthening the resource base of the countries involved in a trade
agreement. According to Shah et al. (2016), free trade is favorable than foreign investment and
emphasizes on the positive relationship between free trade and production while the countries
engaged in free trade gain a comparative advantage in production than their partner countries
comments Andrew (2017). Free trade provides opportunities for accumulating resources and
increases world production and consumption. According to Prateek (2019), the main significance
of free trade is that it brings efficiency by efficient utilization of resources which leads to
specialization and finally increases in consumption. Through free trade economies of scale is
achieved and the consumers are provided with a variety of choice which finally leads to increase
in their standard of living.
Free trade is found to be beneficial for developed countries like the USA. According to the office
of the United States Trade Representative, the U.S. tops the list for being the largest country in
terms of trading in goods and services (exports and imports) and the US goods and services has
seen a surge of 6.5% in 2017 than 2016. The report from the United States Trade Representative
also states that the U.S.A. saw an increase in investment and rapid growth in the economy.
According to Holland (2018), it was because of free trade that the countries of North and Central
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American countries envisaged to forming NAFTA (North Atlantic Free Trade Agreement) in 1994
that brought their economies to come together and draw their fortunes by ensuring energy security.

Critical analysis of the impact of protectionist trade policy

Trade Protectionism is the coming together of a country or group of country to create barriers in
trade to protect its economy from the dangers of international trade. Protectionist trade policy if
followed by the developed countries is found to have put a negative impact on the developing
countries. According to Devarajan et al. (2018), protectionist measures by the U.S. in 2018 made
its trading partners revolt against the higher in tariff rates imposed by the country. But if the views
of Adam Smith and David Ricardo are considered then free trade puts an overall positive impact
on the countries engaged in free trade. As for developing countries, the protectionist trade policy
puts a negative impact. Rodrik (2018) says that the TRIPS (Trade-Related Intellectual Property
Rights) a part of free trade, has brought more harm to the developing countries than the good it has
brought to the developed countries. Asit (2019) commented that due to tensions between the U.S.
and China, India faces an adverse impact on its trade policy. The U.S has denied giving India a
waiver in its tariff rate that deteriorates its economic performance.
Trade protectionism, although protects the developed countries, brings concern for the developing
countries whose revenue from the exports largely depend on the earnings from export. In other
words, it is the developing countries that India that tends to suffer due to the contractions policy
of the importing country and if the country is a developed country it suffers less harmful impact
than the developing country suffers if the trade barrier is imposed by the developed country.
According to Yalcin et al. (2017), the protectionist policy by the developed countries such as the
US has put pressure on the developing countries which have led to reducing in export earnings and
a drop in the workforce. While protectionism improves the local market of the developed countries,
it hampers the local market of the developing countries which rely more on importing technology.
Protectionism increases the balance of payment in India which adversely hampers the economy
through employment gap.

Final viewpoint
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There are significant benefits of the free trade policy. According to (Shah et al. 2016),
incorporating a free trade policy creates a viable positive impact on globalized enterprises. This
influences other major enterprises to import and export goods at a lower cost level. However, the
protectionist trade policy implies critical issues for developing country in the long-run for lack of
economic resources. As mentioned by Betz (2017), the absence of competition disintegrates the
operational processes of the enterprises. This also diminishes the chances for an enterprise or
company to implement innovative strategies for technological development. This slowly
diminishes the product quality of Indian organizations and can effectively divert the customer
preferences towards another product of the market (Ritzel and Kohler, 2017). This also creates a
negative impact on the investors of the enterprises and can effectively terminate the operational
process of the enterprises involved with this treaty.
The provision of significant advantages through free trade can effectively diminish the operational
cost of the enterprises. However, as mentioned by Betz and Pond (2019), free trade is found to be
unprofitable for various enterprises. Free trade has brought more harm to the developing countries
than the good it has brought to the developed countries. According to Devarajan et al. (2018),
developing countries tend to suffer due to the contractions policy of the importing country. The
developed countries suffer less harmful impact than the developing country suffers if the trade
barrier is imposed by the developed country. The protectionist trade policy creates a negative
impact on developed countries too but they can battle negative impact through their economic
assets. The absence of competition disintegrates the management process of the enterprises
involved in developed countries (Rodrik 2018). This inhibits the local market of the developing
countries which rely on quality products. This viably disrupts the market preference on the
enterprises and disintegrates its brand image in the global market.

Conclusion

From the above study, it can be concluded that while free trade has brought beneficial results in
the global trade, the increase in the global trade network has led to many complexities which have
finally led the governments of the respective countries to impose restrictions on the free trade and
chief reasons being economic and political. Developing countries depend more on the developed
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countries for technology which has a higher value compared to the ones exported by the developing
countries. Protectionist trade policy hampers the developing countries from various angles. It puts
a negative impact on the economy thereby slowing the pace of economic growth. In this way, the
aim of the study is met through proving greater negative impact in developing country India.
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Reference list

Andrew, W., 2017. Is free trade good or bad? BBC [Online] Available at:
https://www.bbc.com/news/business-38209407 [Accessed on 5 October 2019]

Asit, R. M., 2019. India faces difficult trade test amid US-China row, rising protectionism.
Livemint [online] Available at: https://www.livemint.com/news/india/india-faces-difficult-trade-
test-amid-us-china-row-rising-protectionism-1559238657467.html

Betz, T. and Pond, A., 2019. The Absence of Consumer Interests in Trade Policy. The Journal of
Politics, 81(2), pp.585-600.

Betz, T., 2017. Trading interests: domestic institutions, international negotiations, and the politics
of trade. The Journal of Politics, 79(4), pp.1237-1252.

Devarajan, S., Go, D.S., Lakatos, C., Robinson, S. and Thierfelder, K., 2018. Traders' Dilemma:
Developing Countries' Response to Trade Disputes. The World Bank.

Holland, A., 2018. NAFTA: Building North American Energy Security.

Prateek, A., 2019. Advantages of Free Trade. Intelligent Economist [Online] Available at:
https://www.intelligenteconomist.com/advantages-of-free-trade/ [Accessed on 5 October 2019]

Ritzel, C. and Kohler, A., 2017. Protectionism, how stupid is this? The causal effect of free trade
for the world’s poorest countries: Evidence from a quasi-experiment in Switzerland. Journal of
Policy Modeling, 39(6), pp.1007-1018.

Rodrik, D., 2018. What do trade agreements really do?. Journal of economic perspectives, 32(2),
pp.73-90.

Shah, M.H. and Khan, Y., 2016. Trade liberalization and FDI inflows in emerging economies.
Shah, MH, & Khan, Y.(2016). Trade Liberalization and FDI Inflows in Emerging Economies.
Business & Economic Review, 8(1), pp.35-52.
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ustr.gov, 2019. Benefits of Trade. Office of the United States Representatives [Online] Available
at: https://ustr.gov/about-us/benefits-trade [Accessed on 2 October 2019]

Yalcin, E., Felbermayr, G. and Steininger, M., 2017. Global Impact of a Protectionist US Trade
Policy. Ifo Institute, Leibniz Institute for Economic Research at the University of Munich, Ifo
Center for International Economics.