StudyKraken Economics
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Free Trade vs. Protectionism

The priorities of a certain government regime dictate its economic policy. Protectionism limits imports by imposing tariffs to promote domestic industries, while free trade reduces barriers to international trade. If the goal is to take care of the country’s citizens, the better economic policy is protectionism because it encourages long-term economic self-sufficiency. Placing restrictions on foreign competitors in the form of surcharges and subsidies ensures the survival and diversity of domestic industries. While globalized trade is praised for offering the best quality at the cheapest prices, there is a dangerous pattern of international conglomerates raising their prices to inaccessible heights once they have beaten out local competitors. Protectionism, therefore, prevents the formation of global monopolies and ensures long-term food security. However, it generates a finite amount of wealth because the consumer base is limited to the population of one country. This drawback might even result in decreased entrepreneurship because there is less incentive to innovate.

Free trade brings more wealth compared to protectionism, but only to a limited sector of society. It benefits the participants of industries that are capable of competing on the international market and appealing to a global consumer base. The last few decades of neoliberalism have shown that free trade contributes to increasing global wealth inequality. Furthermore, it enables corporations to outsource production to foreign countries with cheaper labor or fewer regulations. This results in unemployment and limited opportunity for U.S. citizens, and exploitation of foreign workers. In general, I believe that the promises of free trade have been proven false and that protectionism benefits ordinary citizens more. The creation of wealth does not necessarily imply better living standards for all. However, since the question specifies that the goal is the country’s enrichment, the better economic policy is free trade.

While a strong national currency might intuitively seem like the obvious preference, it presents certain advantages and disadvantages that make it useful only to a certain extent. A currency is considered strong when its value is high relative to other currencies on the foreign exchange market. Throughout 2021, the U.S. dollar strengthened and can now be traded for more foreign currency (Denton, 2021). Firstly, this translates into lower prices for American consumers since the price of imports for goods produced abroad falls. Living standards and available disposable income thus increase for ordinary citizens. American companies that depend on imported raw materials also have lower production costs and larger profit margins. Any employees who receive their salary in U.S. dollars have more purchasing power abroad, so expatriates and travelers also enjoy higher standards.

However, a strengthening currency hurts U.S. businesses both in the domestic and foreign markets. Consumers prefer the cheaper prices of imports, which leads to a fall in domestic demand. Companies are forced to either close or be incentivized to transfer manufacturing to countries with cheaper labor, resulting in the loss of U.S. jobs. Furthermore, prices are higher for foreign consumers relative to their national currency, and thus foreign sales also decrease as the market looks for cheaper alternatives. Therefore, a strong currency is beneficial for ordinary American consumers in the short-term but dangerous in the long term because it threatens the competitiveness of U.S. businesses. If faced with an ultimatum, a strong currency is preferable to a weak one since it benefits ordinary citizens more, but the ideal situation is a sustainable equilibrium.

References

Denton, J. (2021). The dollar is near a 16 month-high: Why it could rise even higher. Barron’s. Web.

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StudyKraken. (2022, December 6). Free Trade vs. Protectionism. Retrieved from https://studykraken.com/free-trade-vs-protectionism/

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"Free Trade vs. Protectionism." StudyKraken, 6 Dec. 2022, studykraken.com/free-trade-vs-protectionism/.

1. StudyKraken. "Free Trade vs. Protectionism." December 6, 2022. https://studykraken.com/free-trade-vs-protectionism/.


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StudyKraken. "Free Trade vs. Protectionism." December 6, 2022. https://studykraken.com/free-trade-vs-protectionism/.

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StudyKraken. 2022. "Free Trade vs. Protectionism." December 6, 2022. https://studykraken.com/free-trade-vs-protectionism/.

References

StudyKraken. (2022) 'Free Trade vs. Protectionism'. 6 December.

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