Effective national foreign trade policy must be consist of best combination liberalization and protectionism financial aid at any time when economic transformation systematic. All of this increases the relevance of protectionism and liberalism in their dialectical relationship, they are, in particular, will be reflected in the new specifications and types in the context of globalization in the countries engaged transformation of the economy systematic. Therefore, we try to assess the economic integration and strategic interests by geopolitical risks and tried to evaluate a policy point of view.
1. Principle of free trade
It emerged and improved as a reaction to the state's protectionist measures in different periods of the development of the national economy, beginning with the era of the initial accumulation of capital and ending with the creation of a national industry in backward countries. Naturally, in this principle, along with criticism of protectionism, there is evidence of the advantages of free trade.
Criticism of protectionism was conducted mainly to identify the negative aspects of the policy of protecting the national economy from foreign competition. The consequences of such a policy are obvious, and they testify to the costs of protectionism.
First, protectionism in the long run undermines the basis of national production, as it weakens the pressure from the world market, necessary for the development of entrepreneurial initiative. Above the desire for progress, innovation, the upper hand is taken by routine, the unwillingness to part with the acquired privileges and received income by position. The determination to surround themselves with protectionist barriers is often determined not by national economic interests, but is the result of pressure from powerful private interests that are supported by the political and parliamentary lobbying.
‒ Secondly, protectionism is harmful from the point of view of the consumer, which makes it necessary to overpay for the goods and services necessary for it, not only for imports, subject to customs duties, but also for products of national production, the production and sale of which are associated with a non-competitive pricing system.
‒ Thirdly, protectionism creates the risk of a chain reaction, since after protection of some industries, sooner or later, the protection of others will be required.
‒ Fourth, protecting national industries from foreign competition drives them ultimately into a protectionist trap, for if «crutches» were given to strengthen such operations, then they are difficult to clean up without the risk of collapse. Thus, protectionism introduced as a temporary measure can become an inalienable attribute of a long-term national economic policy.
‒ Fifth, protectionism strengthens interstate rivalry and poses a potential threat to international stability and security. It weakens the ties of interdependence between countries, hinders the development and deepening of the international division of labor, specialization and cooperation of production, creating at the same time animosity and distrust towards each other.
The advantages of free trade are multifaceted and are proved both by theory and practice.
‒ First, free trade allows to improve the well-being of trading nations, as it opens up opportunities for international specialization of production and exchange based on the principle of comparative advantages. Growth of well-being occurs due to the gain received from international trade. Classics proposed to measure this win by the difference between the rate of profit in the conditions of international exchange of goods and the rate of profit in its absence. A. Marshall used another method — determining the amount of surplus (profit) of producers and consumers of products.
‒ Secondly, free trade facilitates the development of competition and supports the spirit of innovation not only among national producers, but also in relations with other countries. This ultimately contributes to improving the quality of products.
‒ Thirdly, free trade opens up opportunities for expanding markets and, therefore, for international concentration of production and mass production of goods profitable for consumers.
‒ Fourth, free trade serves as the basis for optimizing the distribution of production resources between countries and such an international combination that significantly increases the efficiency of their use.
The recommendations of free trade supporters contributed to the economic growth and prosperity of many countries that embarked on the path of an open economy.
The movement of free traders originated in England in the last third of the 18th century. And was associated with the industrial revolution that took place there. The struggle of the English freetraders was directed against agrarian duties, which supported high prices for agricultural products, which hampered the development of factory production, as well as the reduction of customs duties in mutual trade with other countries, which would increase the export of English goods abroad.
Under pressure of free traders in the 20-ies. XIX century. In England, the reform of the customs system was carried out, during which the duties on many goods were canceled or significantly reduced. In the middle of the XIX century. Fritreiderstvo won a complete victory in England, which largely contributed to its transformation by this time into the most developed country in the world. In the second half of the XIX century. Trends in free trade began to manifest itself in the trade policy of France (1852–1870 gg.), Russia (1850–1860 gg.) And other countries.
2. The principle of protectionism
Along with the shortcomings noted above, it has a number of advantages that make the policy of government control over foreign trade attractive for many countries. The most common reason for restricting foreign trade is the fact that the governments of individual countries think in terms of national interests, rather than the interests of humanity as a whole. In favor of protectionism, there are usually put forward both socio-political and economic arguments.
The socio-political advantages of protectionism are as follows:
‒ First, in maintaining state security of the country, which in case of rejection of protectionist measures will be jeopardized by narrow specialization of the economy. The latter exposes the country to a high risk not only in the event of war, but also during periods of aggravation of international relations. Therefore, the country should develop strategic types of production, primarily agriculture and food industry, as well as industries needed for national defense (metallurgy, certain types of chemical industry, etc.). This is a strong argument, especially with regard to agriculture.
‒ Secondly, in protecting the higher standard of living and high wages in richer countries in their competition with countries where the standard of living is much lower.
‒ Thirdly, it is possible to keep with it some social classes and activities (for example, the peasantry, traditional national crafts), to prevent depression and recession (for example, in the coal industry, etc.)
‒ Fourthly, it is possible to achieve certain political goals in relations with other states. International economic sanctions against the USSR, which followed the introduction of troops into Afghanistan, pursued the goal of ending hostilities and non-interference in the internal affairs of this country; Sanctions against Serbia were one of the tools of pressure on it, so that it changed its course towards Bosnia.
Economic arguments in defense of protectionist measures in which there is a rational grain are reduced mainly to considerations of maximizing the real income achieved by their application.
First argument — with the help of import duties the country can improve the terms of trade and, as a result, increase the economic gain. However, this is possible only in a situation where the demand for goods is more elastic than its offer, and then the price growth will mainly be for the producer, and the revenue from the duty will replenish the state budget. In addition, for the effectiveness of this measure, it is necessary that:
1) the exporting country did not have the opportunity to enter other markets for the sale of its goods;
2) its production factors could not be used to produce alternative products;
3) The decline in export earnings in exporting countries did not affect the demand for these goods in the importing country, which introduces a new tariff.
The second argument — protectionist measures protect the industry at the stage of its inception and growth. For the first time this argument was put forward by A. Hamilton (USA) at the end of the 18th century. And developed by F. List in the XIX century.
In his famous work «The National System of Political Economy» (1841) F. List outlined the evolution of society from the state of savagery to the agro-industrial trade society, when the nation becomes «complex» and «normal». Protectionism serves as an instrument to achieve this stage, protecting the emerging branches of the national economy. However, according to F. Liszt, this protectionism should extend only to industry, to be temporary (as long as growing enterprises gain strength and can compete effectively with foreign producers) and moderate (compensatory duties).
However, experience shows that the protection of such industries in practice is quite difficult. First, it is not entirely clear which industries and why it is necessary to protect, since it is very difficult to distinguish really economic arguments from political motives, which most often express powerful private interests.
Secondly, no one knows when protectionism should stop, which means that there is a risk of preserving protectionist measures for many decades and even centuries. It is known, for example, that the Americans back in the 18th century. Introduced a series of duties on the import of manufactured goods, which have survived to the present day. Finally, the protection of the national market sometimes makes it possible to survive those enterprises that, in the absence of such protection, would not have any chance of surviving, which means that an inefficient resource allocation system would remain in the country.
The third economic argument in defense of protectionism is its role in raising the level of employment of national resources. This idea was first formulated by J. Keynes in The Treatise on Money (1930), and later developed in The General Theory of Employment, Interest and Money (1936), Keynes believed that the economic system is not able to automatically achieve full employment. In this regard, he suggested that the encouragement of exports and the restriction of imports by protectionist measures would have a beneficial effect on employment, as they would increase the aggregate demand for the products of national producers.
However, the success of such a policy is unlikely if it is used by more than one country. Stimulation of own exports by reducing imports from other countries would sooner or later create a deadlock, since it would mean the cessation of all trade. So the proposed scheme is possible only in one case — when the export of the country conducting such a policy is in high demand from other countries. But in the long term, such a policy would provide benefits to one country at the expense of others and ultimately lead to their economic weakening, and hence to a reduction in their import capacities.
The fourth argument in defense of protectionism is connected with an attempt to soften the crisis in industries experiencing economic difficulties. Significant changes in supply and demand both in the domestic and foreign markets can cause a significant impact on a number of industries. A similar blow was felt, for example, by the cotton industry of England in the 1970s.
The restriction of imports during this period allowed to mitigate the crisis, giving the industry more time for restructuring and painless production reduction. Something like this experienced the Russian automotive industry in the 1990's, but here the increase in import duties on imports of cars has had little impact on the restructuring of the industry and improving the quality of products.
The fifth argument concerns the use of protectionism in exceptional cases: the balance of payments crisis, the introduction of tariffs in retaliation for restrictive actions of another country, the protection of domestic producers from «dishonest» foreign competitors, the protection of the national economy from crisis phenomena in other countries, and so on.
With all the credibility of some of these arguments are hardly justified from an economic point of view. Thus, the introduction of response tariffs can increase tensions in economic relations between countries and lead to trade wars in which there are no winners.
Therefore, one can not say that protectionism is always harmful for a given country, and freedom of trade is always beneficial, or vice versa. V.Pareto advises to put the problem differently: «Knowing all the economic and social conditions of a given country at the moment, it should be understood that for this country and at that moment is more suitable — freedom of trade or protectionism».
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