Opponents of free trade often argue that trade with other countries destroys dom

Question

Opponents of free trade often argue that trade with other countries destroys domestic jobs; it threatens industries that are vital to national security; it inhibits the chances of a new domestic industry from surviving; and that it is only desirable if firms in different countries are subject to the same laws and regulations (that is, all firms have a level playing field).

From an economic perspective for each of these four arguments for restricting trade, what are your views? Does free trade only destroy jobs? Why or why not? Is the national security argument valid or not? Why or why not? For the “infant industry” argument, does that attempt to create a class of winners and losers? Provide specific examples to support your answers.

Many companies use the argument that “the lack of a level playing field” is costing them losses in sales and prohibits them from hiring more workers. What do you think?

Explanation / Answer

Each point is debatable and does not have a conclusive right-or-wrong answer. But counter-arguments are as follows.

(a) Free trade does not necessarily cause job loss always. It happens if the domestica and external economic policies are unbalanced. That is, if free trade is done at the cost of domestic industries, and imports replace domestic production, reducing domestic output and causing job loss. But if exports are encouraged as well as only those goods are imported for which no or scanty domestic market exists, free trade boosts up employment, not job loss.

(b) Free trade ideally cannot threaten security-vital industries, for example, defence. Such sensitive goods should not be imported if it is perceived that they threaten domestic industry, instead the concerned domestic industry should be strengthened to meet all domestic demands.

(c) Infant industry is valid in the short run. But keeping an emerging industry protected for a longer duration destroys its efficiency and competitiveness at the global platform. Prolonged protectionist policy harms the infant industry, not benefit it. Also, by artificially protecting the infant industry, an artificial barrier to imports is created by a nation, a policy by which the exporters lose.

(d) All firms cannot have the same rules and regulations applicable to them, due to their factor endowment, resource intensity, nature of exports and imports. However, the GATT always aims at creating uniform and standardized trade rules applicable to all firms (across countries) exporting similar goods and importing similar goods, to provide a non-discriminating environment. In reality it does not exist. Various covert and overt trade barriers create and exist, countries use different trade policies with different countries using the MFN (Most Favored Nation) status, and some countries and firms often engage in dumping practices. Such discriminationary policies does cost many firms in terms of loss in sales.

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