Protectionist Policies

Topics: Economics, Investment, Macroeconomics Pages: 4 (1061 words) Published: September 9, 2006
Analyse the impact of protectionist policies on the domestic and global economies.

The benefits of globalisation, the increased integration of domestic economies into one global economy, cannot be fully materialised if protectionist policies are implemented. Protectionist policies have a negative impact on both the domestic economies of the world and also the world economy, as globalization is hindered. The concept of comparative advantage is not utilized, cheaper prices are not developed for consumers and inefficient and uncompetitive industries are allowed to continue to operate. Hence the protectionist policies of increased tariffs, subsidies, quotas and even embargoes impact negatively on both the domestic and global economy.

With domestic economies, implanting tariffs on imported and giving subsidies to their own domestic produces inefficient industries. The resources of the domestic economy are not being utilized as the resources in the inefficient industries could be better utilized in efficient competitive industries which then can export products overseas, increasing GDP and domestic employment. Singapore for example has implemented economic policy involving very low tariff levels, which has led to the island nation forming internationally competitive industries in refining and finance. The nation has increased its GDP by 23% through 1992 to 2002. Unemployment has dropped from a high of 13% in 1991 to a low of 4% in 1999. By abandoning protectionist policies the nation has developed into a Newly Industrialised economy, resulting in increased living standards in Singapore.

Furthermore protectionist policies lead to decreased employment opportunities in the long term as the economy is not able to expand of grow quickly through use of globalization. With no real increased job prospects in the inefficient domestic industries in the long-term the unemployment rate will rise.

Higher inflation is another effect of protectionist policies. With...
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