Protectionism: Déjà vu Again under the New U.S. President-elect’s Foreign Policies
By Niwech Harnkham, November 16, 2016. USA
The President-elect
Donald Trump has said that he would end the NAFTA and declare China as the
currency manipulator during his lengthy presidential campaign. Basically, he
would impose 45 percent tariffs (taxes) on all products importing from China. His
strategy will increase the imported products’ cost and it will force manufacturers
to produce products in U.S. instead. This strategy is called “Protectionism” in
which the government restricts the international trade by using tariffs and
quotas on import goods. This strategy intends to protect the domestic
businesses and jobs from other countries. The main objective of the
protectionism is to help local businesses by restricting the imports and reduce
tax for domestic businesses.
The protectionism or
protectionist economic policy is not something new. This policy was used in the
19th century. The Northern industries used it to restrain the
imports of cotton and other agricultural from the Southern states. According to the Global Trade Alert, U.S. has
adopted nearly 800 protectionist measures since the Global Economic Crisis in
2008 (Wikipedia, 2016).
Protectionist policy
can be implemented by tariffs, quotas, product standards and government
subsidies. Tariffs are used by
increasing taxes for import goods so that local businesses can compete with
foreign products prices. Quotas are used to limit the number of products that
can be imported in order to limit the supply of specific product during a period
of time. It is being used to prevent the product dumpling in which the foreign
company exports products at below production costs to gain market share.
Product Standards is used to set the rule and regulation for curtain product to
meet the U.S. standards such as product safety, labeling as well as hazardous
materials. These measures will prevent some products to import to U.S. The last one is the government subsidies in
which the government provides subsidies to help lower the cost of production so
that the domestic business can make profit at the lower price.
Enough for the theory
yet! Let’s talk about the President-elect’s vision on the free trade
agreements.
President-elect is
going to end or renegotiate the free trade agreements with China. He said that
he would end the NAFTA which is the North America Free trade Agreement between
U.S., Canada and Mexico. What he is going to do is to increase the import taxes
for goods from China, Canada and Mexico, and other countries too. He plans to
do this hoping that the U.S. and foreign companies will move to U.S. that will
create more jobs for American. At the moment, the Ford Motor is cutting jobs in
Michigan then will move production of small car to Mexico. If Trump ends the
NAFTA, then Ford will be in trouble because it will need to pay more taxes for
importing cars from Mexico into U.S. Increasing taxes, increasing product cost
at the bottom line.
On another hand, China
can do the same to protect its economy. Chinese government can limit quota of U.S.
products to Chinese consumers. It can limit the number of the Chinese students
who want to study in U.S. Universities. It can cancel the order of airplanes
from Boeing which is the U.S. company then favors Airbus who is the competitor
located in EU.
“Boeing contributes as
much as $1 billion annually through its activities in China, including supply
procurement, joint-ventures, operations, training and research and development
investment (Bloomberg, 2016).” This is huge!
We are heading to the
trade war era. We will witness how countries execute the foreign policies to
protect their countries as protectionism is coming back.
EKSPERTSOFT, LLC
www.ekspertsoft.org
EKSPERTSOFT, LLC
www.ekspertsoft.org
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