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.