Global Economy: Between Free Trade and Protectionism
Carla E. Holbrook
Argosy University
July 30, 2014
ABSTRACT
The global economy declined when we had the recession in 2008. During the time of the decline, there has been great debate over the benefits and pitfalls of free trade and protectionism. This paper will identify current trends in globalization, look at what mercantilist stage is and make an opinion as to if the global economy will return to the mercantilist stage. Lastly this paper will look at the benefits of free trade and if it will prevail in this new global economy. Free and open trade, rather than protectionism, is the best way to create economic growth.
Global Economy: Between Free Trade and Protectionism Due to Globalization, the business world has been completely transformed over the past thirty years. The economy is now more international with shares being traded between citizens of different countries on a daily basis (Bishop, Reinke & Adams, 2011). There are two main trends that are occurring in the business world due to increased globalization.
First is an increase in technology and transportation: Globalization has been rising side by side with the advancement in technology and improved transportation. Technology has made it much easier for people to communicate with others around the world as well as transport their goods across borders at a reduced cost. Digital revolution has also made globalization increase. With the invention of the Internet, companies can now transfer files digitally over the Internet to include hand held devices. Bishop, et al stated that transportation is a pro-active agent of globalization and continues to receive additional benefits as transportation itself improves (2011). Transportation is one of the main factors that reduces barriers to international trade and helps to market new technology globally.
The second trend is the liberalization of government trade policies. Governments have a big place in globalization by setting standards for international trade and monitoring the structure for international trade and determining which sectors should become privatized. Recently trade laws are getting more liberal and opening up trade in parts of the world where international trade was previously not taking place (Bishop et al, 2011). Mercantilism was the main economic system used during the sixteenth and eighteenth century. Bowles stated that the main argument for mercantilism was that a country’s primary economic objective should be the achievement of a trade surplus with the associated inflow of
gold (2009). The central idea was that trade was a zero-sum game and that a country could only increase their wealth at the expense of others. The global economy will not return to the mercantilist stage because this type of economic system assumes the wealth of a nation depends primarily on the possession of precious metals such as gold and silver. A system such as this cannot be sustained long term because the global economy would become stagnant. The mercantilist position includes the limitation of imports and the promotion of exports. If every country wanted to export and no one wanted to import then economies would become flat and sluggish with not much growth and there would be no global development. Protectionism is set up to help countries protect their domestic industries by restricting the amount of imports into a country. One way that they achieve this is by raising the price of imports via tariffs (taxes). Protectionism can also include making quotas on the amount of items allowed to enter a country.
Free trade, is the opposite, it lifts barriers to allow the free flow of trade between countries when no barriers like tariffs or import
