Protectionism can be viewed as a type of economic policy that restricts/limits trade between nations through various means such as import tariffs, subsidy programmes, quotas, tax cuts, exchange rate interventions, legislations and other government initiatives.
The policy is used to make sure that domestic businesses, manufacturers, workers and jobs are shielded from foreign competition. The policy is typical for both developed and developing nations. In recent years the more and more countries have been adopting stances in-line with protectionist tendencies.The opponents of protectionist policies argue that the so called merits of the policy are limited and contestable. They argue that in the long-run the trade restrictions hurts the people it aims to help by impeding economic growth and driving up prices. It leads to distortion in the market and lower levels of efficiency. There are considerable allocative inefficiencies that make a erode consumer and producer surplus by a significant margin.
The negative effect is felt by people of the country adopting protectionism as well as in the countries being protected against. Increased protectionist policies lead to an overall decline in the volume of world trade.The advocates of protectionism argue that absence of it leads to unemployment and low wages in developed countries.
Since developed countries have higher cost of business as compared to low wage countries so in case of free trade, there is a loss of jobs in the developed nations since they cannot compete due to their higher labour costs. Their argument essentially boils down to the fact that out-and-out liberalization of trade (free trade) would result in large and disparately distributed profit & loss as well as considerable disruption of labour force engaged in sectors competing internationally.In general, economists are in consensus that the cost associated with protectionism far outstrips its advantages and free trade is the way forward. However, in recent years there has been a rise of protectionist sentiments.
With the election of a conservative president in the US (Donald Trump) there has been a pronounced shift in US policy that has far reaching consequences for developing nations. Specific policies such revamping of visa system and pulling out of trade blocs such as TPP shows that Mr. Trump plans to deliver on his campaign promise of bringing back American jobs and insulating the US economy. Similar sentiments are there in UK as well which voted to exit the EU, which was another heavy blow for free trade. In this paper we look at what recent trends in protectionism mean for the countries of South East Asia.
These countries have generally relied on export of goods/services to drive their economies. Many of them don’t have the domestic markets that can support the support the level of production making international trade a necessity for them.We will look at effect these trade policies have on businesses i.e. what doors have closed which ones are still open.
We will also discuss in detail the possibility of increased regional co-operation to counter the effects of protectionism in the west.