Impact of Reduced Protection on the Global Economy

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Impact of Reduced Protection on the Global Economy

Protection is essentially defined as any action by national governments that will give an artificial competitive advantage to domestic producers over foreign producers. The opposite of protection is free trade, which occurs when there are no limitations to the free movement of goods and services between different economies. The main reasons for nations to reduce protection is to increase efficiency and productivity levels, but in reducing protection also comes with international competitiveness. Globalisation which is a process of intercontinental trade and investment supported by information technology all leading to the creation of a global economy (http://www.BoredofStudies.org). This process cannot be fully materialised if there are policies that are implemented that restrict the artificial advantage that governments give to their domestic industries. These policies are called protectionist policies or rather macroeconomic trade protection. There are a many different types of protection, including embargoes, subsidies or financial backing, quotas; export incentive, voluntary export restraints; although the most important form of protection is the tariff.

International specialisation is a type of specialisation refers to the more efficient allocation of the world’s resources in relation to the law of comparative advantage. Different countries have resources that vary in both quantity and quality they may also vary the suitable factor endowments to have their desired goods produced. Countries need to trade because they need to obtain goods which they are unable to produce for themselves or it is produced more efficiently by other globalising countries. By concentrating on a specific range of goods and services producers can improve the techniques and efficiency. A good example would be Germany’s reputation for cars (e.g. BMWs, Audi) and Japan’s reputation for technology products (e.g. Sony LCD TVs, Toshiba notebooks) have arisen from refinement in product specialisation. Specialisation and comparative advantage also gives a good indication of why it is better to diverse rather than total reliance on key industries. By specialising in production instead of producing everything each nation would profit from free trade. In international economics, it is the direct counterpart to the proposition that people within a national economy will all be better off if they specialize at what they do best instead of trying to be self-sufficient.

Free trade is better for all economies. Many supporters of free trade have agreed that multilateral trade agreements have been good attempts in reducing protection. An example of a multilateral trade agreement is GATT. GATT was an international trade agreement that looked to allow commodities to flow more freely between member nations. As well as the WTO which replaced GATT in 1994, Australia is also a part of Asia Pacific Economic Cooperation (APEC) and the Organisations of Economic Cooperation (OECD). Through GATT tariffs on manufacturers were cut from an average of 40 percent in 1947 to 5 percent by 1985 (Riley, Tim, Year 12 Economics 2006, Tim Riley Publications). The tariff liberalisation promoted quick growth in world trade, with the volume increasing by 500% in the 1950-1975 period (Riley, Tim, Year 12 Economics 2006, Tim Riley Publications). However the rate of expansion fell in the 1980s because of the creation of non-tariff barriers and the absence of GATT rules for trade in agriculture products. Newer types of non-tariff protection like voluntary export restraints (VER) and a diverse range of anti-duping measures have slow down the growth of world trade according to comparative advantage, which punish resourceful commodity producers like Australia and benefit less proficient producers in the US and EU.

The impact of dumping is a key reason for reducing protection levels on economies. Dumping in this situation refers to the...
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