Essay: How Protectionism Affects Trade Deficits

11 Oct

Essay: How Protectionism Affects Trade Deficits

Sample Essay

This is the opposite of free trade where goods and services are allowed to move freely within markets. It involves restrictions of trade in a manner favoring exports and discouraging imports. Systems such as quota that restrict certain trade practices are applied together with manipulations of tariffs levied on both imports and exports (Magee 96). This system is said to favor local industries hence creating more employment for the locals and thus improving the general trend of their trade. It insulates locally manufactured goods by exposing them to a less competitive environment thus improving trade deficits by allowing more exportation of cheaply produced goods.

It is arguably true that protectionism in one way or the other harm the people it is designed to protect. Compared to free trade, it creates fewer jobs and the losses feared are less compared to gain from free trade. This implies that low employment transmits the burden to the governments, which needs to depend on its money to deal with the problem (Magee 232). Trade deficits then may set in due to huge commitments of government funds to the unemployed or unproductive citizens. The former chair of the federal reserve of the US Alan Greenspan criticized this practice boldly terming it an atropy of competitive ability adding that newer industries will have less scope to expand their operations saying that the overall output of the economy will be affected (Sicilia et al. 14).

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