Arguments for Protection

Freer international trade has been a subject of debate for many years. Some people, known as protectionists, favor trade barriers that protect domestic industries. Others, known as free traders, favor fewer or even no trade restrictions. The debate between the two groups usually centers on the five arguments for protection discussed below.

National Defense

The first argument for trade barriers centers on national defense. Protectionists argue that without trade barriers, a country could become so specialized that it would end up becoming too dependent on other countries.

During wartime, protectionists argue, a country might not be able to get critical supplies such as oil and weapons. As a result, even some smaller countries such as Israel and South Africa have developed large armaments industries for such crises. They want to be sure they will have a domestic supply if hostilities break out or other countries impose economic boycotts.

Free traders admit that national security is a compelling argument for trade barriers. They believe, however, that the advantages of having a reliable source of domestic supply must be weighed against the disadvantages that the supply will be smaller and possibly less efficient than it would be with free trade. The political problem of deciding which industries are critical to national defense and which are not must also be considered. At one time, the steel, auto, ceramic, and electronics industries all have argued that they are critical to national defense and so should receive protection.

Promoting Infant Industries

The infant industries argument—the belief that new or emerging industries should be protected from foreign competition—is also used to justify trade barriers. Protectionists claim that these industries need to gain strength and experience before they can compete against developed industries in other countries. Trade barriers would give them the time they need to develop. If infant industries compete against foreign industries too soon, they argue, they might fail.

Many people are willing to accept the infant industries argument, but only if protection will eventually be removed so that the industry is forced to compete on its own. The problem is that industries used to having some protection are normally unwilling to give it up-making for difficult political decisions later on.

To illustrate, some Latin American countries have used tariffs to protect their own infant automobile industries, with tariffs as high as several hundred percent. In some cases, the tariff raised the price of used American-made cars to more than double the cost of new ones in the United States. In spite of this protection, no country in Latin America has been able to produce a competitive product on its own. To make matters worse, governments have come to rely on the revenue supplied by tariffs, so prices for automobiles remain high for their citizens.

International Trade

American Indian Steelworkers

Protecting Domestic Jobs

A third argument-and one used most often-is that tariffs and quotas protect domestic jobs from cheap foreign labor. Workers in the shoe industry, for example, have protested the import of lower-cost Italian, Spanish, and Brazilian shoes. Garment workers have opposed the import of lower-cost Korean, Chinese, and Indian clothing. Steelworkers have blocked foreign-made cars from company parking lots to show their displeasure with the foreign-made steel used in producing the cars.

In the short run, protectionist measures provide temporary protection for domestic jobs. This is especially attractive to people who want to work in the communities where they grew up. In the long run, however, industries that find it hard to compete today will find it even harder to compete in the future unless they change the way they are doing things. As a result, most free traders believe that it is

Expansion With the great expansion of trade, many U.S. companies set up operations in other countries. Protectionists favor trade barriers that protect domestic industries. What is the assumption behind the infant industries argument?

best not to interfere, and thereby keep pressure on threatened industries to modernize and improve.

When inefficient industries are protected, the economy produces less and the standard of living goes down. Because of unnecessarily high prices, people buy less of everything, including those goods produced by protected industries. If prices get too high, substitute products will be found and protected jobs will still be lost. Free traders argue that the profit-and-loss system is one of the major features of the American economy. Profits reward the efficient and hard working, while losses eliminate the inefficient and weak.

Keeping the Money at Home

Another argument for trade barriers claims that limiting imports will keep American money in the United States instead of allowing it to go abroad. Free traders, however, point out that the American dollars that go abroad generally come back again.

CONTENTS

HE GLOBAL ECONOMY

The Art of Communication

With the globalization of business, it is necessary to understand and to adjust to the communication style of other cultures.

Only in the Germanic countries will the people be as eager to get down to business as in the United States of America. Almost anywhere else in the world, but especially in Asian and Latin countries, it's important to first get to know the person with whom you're dealing to build a bond of trust. Three f's of business in Asian cultures are family, friends and favors. If you're not part of an extended Asian family or if you don't have close Asian chums from your school days, find the time to develop a friendship with a well-connected intermediary [agent]. Relationships, once formed, are long lasting bonds of loyalty that must be respected. . . .

Space is one of those seemingly inconsequential aspects of human interaction that can have major consequences elsewhere. The American personal bubble of space is much greater than that of an Arab or a Russian, but smaller than that of a Briton. Infringing upon another's personal space or inadvertently backing away when someone enters your bubble can send unintended negative messages. Touching someone—a hand on the forearm, an arm around the shoulder, or a pat on the back—is one of the easiest ways to violate personal space.

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Critical Thinking

1. Analyzing Information What does the writer mean by "space"? Explain the concept in your own words.

2. Summarizing Information What does it mean to say that "the American bubble of space is much greater than that of an Arab or Russian"?

3. Drawing Conclusions Why is it important to understand the values of another culture when doing business?

The Japanese, for example, use the dollars they receive for their automobiles to buy American cotton, soybeans, and airplanes. These purchases benefit American workers in those industries.

The same is true of the dollars used to buy oil from the Middle East. The money comes back to the United States when oil-wealthy foreigners buy American-made oil technology. Keeping the money home also hurts those American industries that depend on exports for their jobs.

Helping the Balance of Payments

Another argument involves the balance of payments-the difference between the money a country pays out to, and receives from, other nations when it engages in international trade. Protectionists argue that restrictions on imports help the balance of payments by restricting the amount of imports.

What protectionists overlook, however, is that the dollars return to the United States to stimulate employment in other industries. As a result, most economists do not believe that interfering with free trade can be justified on the grounds of helping the balance of payments.

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