Are Protectionist Policies Beneficial to Business?

Protectionism

Are Protectionism Policies Beneficial to Business

Protectionist policies are policies that are aimed at supporting a domestic industry against international competitors. These policies can take a range of different forms in their implementation. For example, the U.S. agricultural industry is heavily subsidized and this allows domestic farmers to sell their crops at a price level that is far below what the market price would be otherwise. This represents more of an indirect subsidy because the market intervention is a direct intervention such as a tax on foreign goods. Another way governments can apply protectionist policies is through government spending.

Another example could be provided by the U.S. steel industry, which can be protected by the government only procuring steel for U.S. public works projects from domestic steel companies. When the government places such buying restrictions on their demand for steel then they artificially influence market demand through their purchasing activities. The government can justify this intervention based on the grounds that the U.S. steel industry is a "strategic" industry that is vital to the national interest. For example, if the U.S. was engaged in a major war then it would benefit from a well-developed steel industry.

Such interventions can also be justified on other grounds as well. Another example would be for safety or environmental interests. An example of this could be medical or edible goods from a country that doesn't have significant regulations and would want to protect its population from potentially unsafe goods. Environmental objectives can be cited in similar reasoning "In congressional testimony in March [2009], United Steelworkers boss Leo Gerard explained how unfettered trade in steel would both ship jobs abroad and make the world's pollution worse. Ton for ton, he said, Chinese steel leaves a carbon footprint three times as large as American steel" (Are Protectionist Policies Beneficial to Business? ).

Opinion: Pro-Protectionism

Although a strong case can be made in regards to free trade policies spurring innovations through greater levels of competition, the factors for production are not necessarily equal throughout the world. For example, firms operating in the United States must abide by many regulations in production. These regulations could be placed by labor unions, minimum wage laws, the EPA, or many others. Firms in China and India do not have to operate under such restrictions and therefore they are already in an advantageous position in many industries. I am pro-protectionism because the government can play a vital role in ensuring that the terms of competition are fact and equitable in some key industries; especially in regard to how they treat the environment.

The most salient issue in the new century will almost undoubtedly be environmental regulations. Climate change threatens to alter the planets ability to support ecological systems for the worse. Natural capital such as fertile farm land, clean water, and clean air are in jeopardy of diminishing and will likely be unable to effectively support the planets growing human population in the near future. Therefore the response to these issues will undoubtedly have to include protectionist policies to help level the playing field in regard to ecological concerns.

Currently, the WTO leaves discretion over environmental policies to its members, but requests that a fundamental non-discrimination principle is respected: National Treatment (NT). The provision seeks to prevent protectionist use of domestic policy instruments, requesting that when an imported product is sufficiently similar to a domestic product, they are treated identically (Horn, 2011). This is problematic for trade under the WTO because many countries under these agreements treat the environment in significantly different ways. For example, the European countries currently utilize a cap and trade system and the U.S. does not and therefore the United States would have a trade advantage due to the provision of an environmental externality.