Are Protectionist Policies Beneficiak to Business?

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Street−Street: Taking Sides: Clashing Views in Management, Third Edition

IV. Environmental and International Management Issues

18. Are Protectionist © The McGraw−Hill Taking Sides: Clashing Views in Management, Third Edition Policies Beneficial to Companies, 2010 Business?

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ISSUE 18
Are Protectionist Policies Beneficial to Business?
YES: Ha-Joon Chang, from “Protecting the Global Poor,” Prospect Magazine ( July 2007) NO: Robert Krol, from “Trade, Protectionism, and the US Economy: Examining the Evidence” in Trade Briefing Paper No. 28, The Cato Institute (September 16, 2008) ISSUE SUMMARY YES: In support of the idea that protectionist policies help business, Ha-Joon Chang focuses attention on developing industries in poor countries. Further, he describes and advocates historical protectionist policies from around the world. NO: In the “No” selection, Robert Krol describes the findings of various economic studies of international trade. The areas that he surveys include the effect of trade on employment and wages as well of the costs of trade restrictions. He concludes that overall the benefits from protectionist policies are overshadowed by their negative effects.

t is understandable that a country would want to take care of its own citizens first. To this end, many countries adopt policies that prop up domestic industries and limit foreign organizations from engaging in business in their country. Generally speaking, such policies are typically labeled “protectionism.” A formal definition of protectionism is the “National economic policies designed to restrict free trade and protect domestic industries from foreign competition” (S. Tamer Cavusgil, Gary Knight, and John R. Riesenberger, International Business. 2008. Pearson, p. 620). Protectionist policies include governmental actions such as tariffs (taxes on imported goods), quotas (limits on the amount of goods that can be imported), subsidies (government support of certain domestic businesses or industries), and other policies like the “Buy American” requirements in the United States. Let’s take a look at a couple of broad examples. When foreign competitors in a particular industry operate with a lower cost basis, home governments will frequently provide funds (subsidies) to that industry in their own country

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Street−Street: Taking IV. Environmental and 18. Are Protectionist Quantitative Foundations and Business Applications Sides: Clashing Views in International Management Policies Beneficial to Management, Third Edition Issues Business?

© The McGraw−Hill Companies, 2010

to help the domestic companies compete against foreign competitors. The ultimate goals of such policies are many: keeping specific domestic industries competitive, keeping the country’s workers employed, and keeping them employed at higher wages than would be the case without subsidies. Another protectionist strategy is using tariffs assessed on foreign goods. This causes foreign competitors to charge higher prices than they would otherwise be able to in order to remain profitable. For a more concrete example, we can look at the US steel industry. To address increasing fears that foreign steelmakers will increase market share in the United States, politicians and US steel industry advocates want to implement economic stimulus legislation requiring that infrastructure projects in the United States use domestic steel (Quentin Hardy and Taylor Buley, 2009. “The Greening of Trade Wars” Forbes, 183(8), 26). Further, there is concern that market share increases from foreign competitors will hurt not only the steel industry but also have negative effects on the environment. Consider the following comments from a union leader in the US steel industry: “In congressional testimony in March [2009], United Steelworkers boss Leo Gerard explained how unfettered trade in steel would both ship jobs abroad and make the world’s pollution worse. Ton for ton, he said, Chinese steel...
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