This paper analyzes the debate between free trade and protectionism as it applies to New Zealand's agriculture industry, a sector heavily reliant on exporting commodities such as kiwi fruit and apples. Drawing on economic theory and policy examples from multiple countries, the paper outlines four principal harms of protectionism — lost jobs, higher prices, higher taxes, and debt crises — and contrasts these with the benefits of free trade, including specialization, economies of scale, resource efficiency, and rising living standards. The paper also examines the "Buy American" and "Buy New Zealand Made" campaigns as case studies in protectionist sentiment before concluding that free trade remains the optimal framework for sustaining New Zealand's agricultural prosperity.
New Zealand is heavily dependent on exporting fresh fruit around the world. Being able to do this without any barriers has been the best condition for this industry to flourish. Those who support protectionism in this country would be doing more harm than good. Free trade is the model in which New Zealand needs to operate in order to continue to be successful.
The argument for protectionism, or "fair trade," may at first sound appealing to some, but not to others. Supporters of protectionist laws claim that keeping out foreign goods will save jobs. They feel that it will give ailing domestic industries a chance to recover and prosper, and reduce existing trade deficits. During the last century, classical liberal philosopher John Stuart Mill observed that trade barriers actually do more harm than good for those countries that impose them. This appears to be just as true today, as demonstrated by the following ways in which harm has been documented.
The first harm is that of lost jobs. Protectionist laws raise taxes or impose tariffs on imported goods, as well as limits or quotas on the amount of goods a government allows to enter the country. These laws not only restrict consumer choice, but also contribute significantly to the cost of goods and the cost of doing business. Under protectionism, people often end up poorer, with less money available for buying the things they want and need. It has also been observed that protectionist laws that reduce consumer spending power actually end up destroying jobs instead of saving them (Miller and Elwood, n.d.).
The second harm is that of higher prices. Japanese consumers pay five times the world price for rice because of import restrictions put in place to protect Japanese farmers. European consumers pay heavily for restrictions on food imports and for domestic farm subsidies. American consumers suffer from a similar double burden: they pay six times the world price for sugar because of trade restrictions. Another example can be seen in the U.S. Semiconductor Trade Pact. This agreement pressured Japanese producers to cut back production of computer memory chips, causing a sharp worldwide shortage of these widely used components. Prices quadrupled, and companies using these parts in the production of consumer electronics around the world were adversely affected (Miller and Elwood, n.d.).
The third harm is that of higher taxes. Protectionist laws not only force consumers to pay more on imported goods, but they tend to raise general taxes as well, because governments regularly expand their Customs Department bureaucracies in order to enforce new trade restrictions. There is also the added expense of increased red tape and paperwork for trading companies, and greater inconvenience for individual travelers passing through borders (Miller and Elwood, n.d.).
The fourth harm is that of producing a debt crisis. Western banks are owed hundreds of billions of dollars by several Eastern European and Third World countries. Trade restrictions imposed by Western governments, however, have effectively cut off Western markets for these countries, making it virtually impossible for them to earn the money needed to repay their loans. It is argued that this greatly increases the possibility of a collapse of the world banking system (Miller and Elwood, n.d.).
The only people thought to gain from protectionist laws are special-interest groups, including large corporations, unions, and farmers' groups. These groups would all benefit from charging higher prices and earning higher wages than they could expect in a free marketplace. Such special-interest groups have the money and political influence to pressure politicians into passing laws that favor them. Politicians, in turn, play on the fears of uninformed voters to rally support for these kinds of measures (Miller and Elwood, n.d.).
Protectionism refers to government policies put in place to shield domestic production and producers from foreign competition. Economic analysis shows that the losses from a tariff exceed its benefits. In theory, a tariff is wasteful because it leads to the substitution of higher-cost domestic production for lower-cost imports. If tariffs were repealed, manpower and capital in protected industries would shift to other employments — at home or abroad — and everyone, in their role as consumers, would gain from lower prices (Dales, 2009).
Free trade occurs when there are no artificial barriers put in place by governments to restrict the flow of goods and services between trading nations. When trade barriers such as tariffs and subsidies are introduced, they protect domestic producers from international competition and redirect, rather than create, trade flows (Edge, n.d.).
Free trade allows countries to specialize in the production of commodities in which they hold a comparative advantage. Specialization enables countries to take advantage of efficiencies generated by economies of scale and to increase output. International trade increases the size of a firm's market, resulting in lower average costs and increased productivity (Edge, n.d.).
Free trade also improves the effectiveness of resource allocation. The more efficiently a country uses its resources, the higher its productivity and the greater its total domestic output of goods and services. Increased competition promotes innovative production methods, the use of new technology, and improved marketing and distribution. Consumers in a domestic economy benefit by gaining access to a greater variety of goods and services, and competition ensures that these goods, services, and inputs are supplied at the lowest possible price (Edge, n.d.).
When a country sells exports overseas, it receives foreign currency that it can then use to purchase goods from abroad. Trade liberalization helps create both winners and losers as resources move to more productive areas of the economy. Employment tends to increase in exporting countries, while workers are displaced as import-competing industries contract in the more competitive environment. Overall, free trade has been associated with job creation across many sectors. Countries engaged in free trade experience rising living standards, increased real incomes, and higher rates of economic growth (Edge, n.d.).
Agriculture is a major industry in New Zealand. Over 14% of the country's total land area is devoted to agriculture. Capital investment in land improvement and mechanization has contributed significantly to steady growth in agricultural production without a corresponding increase in the farm labor force. Approximately 76,000 tractors and 3,100 combine harvesters were in use during 1998. Agriculture contributes about 8% to GDP and accounted for 11% of exports in 2001. Cereal cultivation — more than 90% of which takes place on the South Island plains and downlands — fluctuates in terms of both acreage and crop size. In 1999, areas harvested to wheat totaled an estimated 131,000 acres, yielding 290,000 tons; 27,000 acres yielded 40,000 tons of oats; and 198,000 acres yielded 400,000 tons of barley (New Zealand — Agriculture, 2009).
"Key statistics on NZ farming and horticultural exports"
"Comparing government and private protectionist campaigns"
If you look at the effects that protectionism and free trade have or would have on the agriculture industry in New Zealand, you see that protectionism would hurt this industry tremendously because it is a very heavy exporter. New Zealand would lose a great deal of income, which would in turn affect employment. Jobs would be lost and the general public would suffer. The idea of free trade is the best approach for this industry, given how much fresh fruit it exports around the world. Continuing to operate under a free trade framework will allow New Zealand's agriculture industry to continue to thrive and grow at its current pace. This is the policy that will best allow the country to sustain the profits it generates by exporting its agricultural products to global markets.
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