Protectionism and Free Trade
Principles of Economics:
A Discussion on Protectionism and Trade Liberalization
In the convoluted world of discussion over the future of developing countries, rich nations seem to make all the decisions, regardless of whether they benefit or harm the former group, or so it seems. This supposition is debated heatedly by those concerned and by external actors, especially when it comes to deciding whether trade liberalization is the right modality through which to aid the developing world, and especially when it is conducted through financial means, such as those involving the International Monetary Fund (IMF) loan programs. What is certain is that developing nations must fulfill quite a rigorous number of criteria to even begin to even start the qualifying process of joining the rich nations' club. The gatekeeper is, of course, the IMF, an organization that ensures that trade liberalization is complied with in order for developing countries to qualify for financial aid, or loans. This policy, regardless of intent, is unfair to some, especially in light of the history of developed countries (i.e. formerly protectionist nations), and many posit whether trade liberalization is, in fact, something that all must undertake, given the different and unique structures each country contains. And hence the debate cycle continues.
This paper will analyze the various 'hoops' through which developing countries must jump in order to meet the standards imposed upon them by the wealthy world, and will strive to give an answer to the question of whether current trade liberalization policies are fair, and if so, to what extent. In order to begin to answer the above-stated question, one must undertake an analysis of the various components of the argument presented in this paper. First, a history of the economics of trade will be described, with a few theories intertwined. Second, a short description of IMF policies and how they have affected developing countries will also be provided. Lastly, case studies that illustrate success or failure of these policies will also be described, in order to see whether trade liberalization, protectionism, or a combination of the two is the right recipe for success.
Historical Basis: Economics of Trade
The world has changed dramatically since the 18th and 19th centuries, when most of today's developed countries were developing. During the times when the United States and the United Kingdom, as well as many countries in Europe and Asia, some of whom are today's economic and financial frontrunners, were striving to survive, there was no helping hand, no advice imparted, and certainly no 'one size fits all' model to help these countries succeed. Yet they have succeeded nonetheless. The question to ask, then, is what has made these countries so successful on the world stage, and what they can do to help those in need today develop and achieve the same kind of growth and stability.
The answer is somewhat simple, yet in order to understand it, one must understand the way history has treated not just such concrete cases, but also how theories have developed to bolster inefficient or successful enterprises. Of course, in order to truly understand the specificities of the above-stated model, one must analyze each country in particular, complete with its unique characteristics, and build a model upon which one may then be able to assert or deny certain claims of success or failure. Due to time and length constraints, however, this would not be a successful enterprise, and will be limited to a short history of theory and practice, beginning with the latter. Thus, this section will begin by describing the economics of trade, as they have developed since the times of Adam Smith, the father of political economy.
Mercantilism
To begin, one must go back to Adam Smith and must first note that before this man's revolutionary ideas changed the world, mercantilism, a philosophy that stressed government control over foreign trade, reigned supreme. Mercantilism was believed to be of the utmost good for a nation for a few reasons. First, it ensured a balance of trade, and due to times when mercantilism was in favor (i.e. when gold reigned supreme), this made sense (LaHaye, 2008). Thus, during the centuries in which mercantilism controlled business ideals, most nations dealt with gold rather than money, for obvious reasons (i.e. banks could not be trusted). A second reason for why mercantilism was favored from the 16th and until the 18th century was because many believed it gave an advantage to more powerful, more...
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