International Trade & Finance China Research Proposal

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S. inflation in check, even during economic boom times.

Cultural Values

The debate about increasing protectionism in the U.S. boils down to a clash of cultural values. In the natural course of international trade, there will be those who suffer and those who benefit. International markets are amoral. Trade is conducted between nations with the intent of raising the standard of living for both, but this is on aggregate, not universally. As a result, jobs losses in some sectors, particularly those where the U.S. does not have comparative advantage, are inevitable. To enact protectionist measures to stem those job losses will have three negative impacts.

The first is retaliatory trade measures. Tariffs and other protectionist measures tend to go hand in hand. If a country protects its industries, nations that trade with that country will do the same. This is the classic Smoot-Hawley scenario. To protect American jobs during the Depression, the Smooth-Hawley Act was signed, bringing heavy tariffs to protect U.S. workers. However, the major trading partners in Canada and Europe retaliated against these measures by protecting their markets from American goods. The impacts on the U.S. economy were devastating, as export markets disappeared overnight and domestic consumption remained unstimulated (U.S. Department of State, no date).

The second impact of protectionism is that it represents a distortion in the markets. If the free market determines that those jobs are no longer sustainable, protectionism will not change that. The cost of sustaining those jobs will simply get higher, as those jobs become increasingly unsustainable. Distorting markets creates inefficiencies and the potential for market failure.

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By contrast, the removal of trade barriers promotes market efficiency.

The third impact of protectionism is that it breeds complacency. Industries that are protected have little incentive to compete better. They innovate at a slower pace, are less efficient, and invest less on improving their capabilities. Protecting industries ultimately harms them in the long run.

Conclusion

Protectionism does help to protect some American jobs, in the short-term. However, it costs more jobs than it saves. Free trade stimulates the economy and creates jobs in other areas, that can offset the impact of lost jobs in some sectors. While this is no comfort for the workers who are suffering the impacts of trade with China, it is not the goal of a capitalist government to provide lifetime employment in one's field of choice. If the nation as a whole benefits from the removal of trade barriers, then that is the course that the government should take.

Protectionism in trade with China will fail the consumer public. The price of goods will increase, leading to inflation. Moreover, the availability of some goods may decrease as well. Consumer choice is best served by free trade, and it raises the living standards in both nations. Protectionism, therefore, fails consumers in both the short and long run, and it fails most American workers in the long run. The short-term benefits to a few would be far outweighed by the negative consequences to the many.

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