Introduction
International businesses are highly regulated operations by governments around the world. They do this to protect their countries from harmful trade that may harm their economy and citizens. The action by countries through their government to protect their domestic industries through policies restricting international trade is commonly referred to as trade protectionism (Walters & Bellucco-Chatham, 2022).
Countries develop policies that target protecting and improving their domestic economy. Still, these policies can also be employed to ensure the safety and quality of the products that enter the country. Therefore, this paper hypothesizes that most countries use trade protectionism to safeguard their domestic production and ensure their citizens’ safety by consuming quality products.
Understanding Protectionism in Global Business
From a global perspective, policies that are involved in protectionism majorly focus on imported products and services. In addition, these policies also influence other aspects of global trade, such as product standards and subsidies from the government (Dadush, 2022). The intrinsic worth of this aspect of global trade is a subject of fierce debate among economists and other stakeholders. Those who criticize the ideology argue that protectionism always hurts the entities it was designed to protect over a long period.
The critics argue that the laws and policies restricting trade among countries slow a country’s economic growth by increasing its price inflation, making free trade among nations a better option (Walters & Bellucco-Chatham, 2022). On the other hand, the proponents or the supporters of protectionism argue that these policies are crucial to a country’s development. They support this by saying protectionism leads to the growth of a nation’s gross domestic product, enabling a country’s domestic economy to compete globally.
Tools for Protectionism in International Trade
Tariffs
Countries have limited abilities to produce all the necessary goods and services. Some countries are limited by their natural resources, while others are limited by technology. These limitations result in an international trade that enables their citizens to acquire the goods and services demanded. Several factors influence global business, such as policies, competition, and geopolitics. Thus, in order not to succumb to competition from the global market, countries impose tariffs on imports. This tool is critical in protecting local industries as it increases the prices of goods and services purchased from the global market, making them less attractive to the local population, who are the consumers (Chen et al., 2022).
It is imperative to note that tariffs affect the countries where the goods are imported. This is because the domestic consumers to whom they exported goods may shy away from the products or services due to exorbitant fees charged for the products. Import tariffs are an effective tool that the government has been using for several years when seeking to implement protectionist policies. The government also uses this tool to benefit a given economic sector and protect the local job market. For instance, in 2022, the United States government proposed a 25% ad valorem tariff on all countries (Walters & Bellucco-Chatham, 2022). The government only exempted Canada, Mexico, and the United Kingdom. This way, the United States protects its steel industry and production jobs.
Import Quotas
Governments also use tools such as quotas to protect their domestic industries. A quota is a government restriction on trade to limit the amount of goods a nation can import or export in a given period (Rokhaniyah et al., 2023). Countries use import quotas to regulate the level of trade between them and other countries in the global market. In some cases, a country may impose quotas on specific products they acquire from a global market to build local capacity, enabling them to increase production. This way, they can boost local capacity by restricting competition from foreign firms. This action by the country has a marginal impact on the prices, resulting in increased demand for locally produced products to cover the shortage caused by the restrictions.
Additionally, other countries use quotas to prevent the dumping of goods into their markets. Dumping occurs when international players export products at lower prices than production costs (Sanskar, 2023). An embargo is a form of quota a country may use to control such activities. It completely prohibits the importation of a given product from a given destination. Thus, it is the most severe quota a country can impose on goods.
Product Standardization
The safety of a country’s population is a significant concern to governments worldwide. Thus, as a measure, countries implement product standards policies that ensure that all products consumed within their borders are of the right quality and safe. Product standardization is considered one of the protectionism policies, which is a barrier to international trade as it limits imports of goods based on countries’ international controls (Topornin et al., 2023).
Product regulatory standards differ across borders with other countries with lower regulatory requirements. Regulatory protectionism can be enacted in areas such as the food sector, intellectual property, or the material production segment. This policy can block certain products by restricting their importation, leading to increased production volume in local industries. For instance, the United States ban on some French cheeses can be best used to explain how product standardization can be implemented to protect consumers and local production.
The United States allows for importing cheeses made of raw milk aged 60 days before their importation instead of pasteurized milk, limiting the importation of these products from France (Walters & Bellucco-Chatham, 2022). In France, the cheese production process involves the fermentation of raw milk for 50 days or less; therefore, most of its cheeses are banned in the United States (Walters & Bellucco-Chatham, 2022). This gives the local industries dealing in the same product an advantage.
Government Subsidies
Government subsidies are also another vital tool used by countries in international trade. It usually occurs in various forms that can be either direct or indirect. Direct subsidies inject cash into businesses, while indirect ones can take the form of special savings, for instance, by providing businesses with interest-free loans or tax breaks (Walters & Bellucco-Chatham, 2022).
The government, while considering subsidies as a tool that can be used to protect local companies, may decide to directly or indirectly subsidize production, employment, tax, and properties, among other options. This can aid in boosting the nation’s balance of trade by allowing the companies to compete on the global stage (Walters & Bellucco-Chatham, 2022). Alternatively, the country may subsidize exports by incentivizing local companies to expand their operations globally. This way, the government can protect these businesses from unprecedented losses as they export to other countries.
Conclusion
Trade protectionism is vital to global business that works in a country’s best interest. Most nations implement it to protect their local industries and safeguard their citizens from harmful products through product standardization policies, tariffs, and quotas. This way, they boost domestic industries by encouraging local consumption. Thus, they grow their economy and create employment opportunities for their populations.
References
Chen, K., Wang, X., Niu, B., & Chen, Y. J. (2022). The impact of tariffs and price premiums of locally manufactured products on global manufacturers’ sourcing strategies. Production and Operations Management, 31(9), 3474-3490. Web.
Dadush, U. (2022). Deglobalization and protectionism. Bruegel.
Rokhaniyah, H., Rahayu, D. S., Amalia, N. R., & Saputro, M. I. (2023). The impact of The World Trade Organization (WTO) import quota policy on Indonesian rice import from Thailand in 2015-2020. Journal of Islam and International Affairs, 8(1), 19-34. Web.
Sanskar. (2023). The impact of protectionist policies on global trade. Indian J. Integrated Rsch. L., 3, 1. Web.
Topornin, N., Pyatkina, D., & Bokov, Y. (2023). Government regulation of the internet as instrument of digital protectionism in case of developing countries. Journal of Information Science, 49(3), 595-608. Web.
Walters, T., & Bellucco-Chatham, A. (2022). Protectionism: Examples and types of trade protections. Investopedia. Web.