If free trade is so good, why is it so controversial? Why do governments engage in protectionism, policy intervention to limit trade (chapter 10)?
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Free trade is often controversial because it can have winners and losers in the short term. While it has significant long-term benefits, such as promoting economic growth, innovation, and resource allocation efficiency, there are several reasons why governments sometimes engage in protectionism:
1. Domestic industries and job protection: Governments may implement protectionist measures to shield domestic industries and workers from foreign competition. This is done to protect employment opportunities and prevent the decline of specific sectors, especially in industries facing intense international competition.
2. National security concerns: Governments may restrict certain imports that are deemed critical to national security. This could include sensitive technologies or essential goods that are required during emergencies or conflicts.
3. Strategic trade policy: Governments may intervene in trade to support specific industries or to gain a competitive advantage in the global market. This can involve providing subsidies, tax breaks, or tariffs to promote domestic production and competitiveness.
4. Infant industry argument: Governments sometimes protect new or emerging industries until they become competitive internationally. This is done by shielding them from foreign competition initially so they can grow and gain experience before facing global competition.
5. Environmental and social standards: Governments may impose trade restrictions to ensure compliance with various environmental or social standards. This can be done to avoid environmental degradation, protect labor rights, or prevent exploitation of workers in countries with lower standards.
6. Strategic retaliation: Governments may engage in protectionism as a response to unfair trade practices or restrictions imposed by other countries. In such cases, protectionism can be used as a negotiating tool or a means of self-defense.
It is important to note that while protectionist measures might be justified in certain situations, excessive protectionism can lead to trade wars, reduced global cooperation, and harm overall economic growth and development. Striking the right balance between free trade and protectionism is a complex challenge for governments worldwide.
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