This summary and analysis looks at an article from the Wall Street Journal dated 14th June 2012 and written by Sudeep Reddy. The article titled “Trade Protectionism Rises as Economies Slow” contends that economic slowdown in many regions around the world has made many nations to turn to trade protectionism to ensure that their economies are protected against trade threats from external economies and global competition.
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The article, which quotes the report of Global Trade Alert observes that more than 100 trade protectionist measures have been implemented by various countries across the world since the G20 summit meeting of 2011. Furthermore, of all the protectionist measures implemented, about 81% were implemented by the G20 members (Sudeep par. 1).
Among the trade protection measures adopted by the various countries include export restrictions and imposing of higher tariffs. These measures were particularly spiked by the financial crisis of the 2008. Since international trade is generally governed by certain rules, which every country trading must adhere to, countries have turned to stealthier protectionism to avoid the trade the impact of the trade rules by circumventing around them (Sudeep par. 2).
It is observed that most culprits of the trade protectionism are members of the European Union who have used at least 302 discriminatory measures. The members of the European Union are followed by Russia and Argentina sharing half the number of trade protectionism measures per member.
One of the countries highly affected by these trade protectionism measures includes China at the top and other members of the European Union. The article closes by observing that the G-20 countries have failed to effectively fight protectionism and keep the world trading system open (Sudeep par. 3).
As trade recently moved from local or national economies to the current globalized trade regimes, there has been desire to remove trade barriers in the international trade hence improve efficiency and remove friction in trade between countries. Nevertheless, free trade and trade protectionism both have advantages and disadvantages.
For the part of advantages of protectionism, most countries seem to turn to protectionism to instill stability in their local markets, which is disrupted when free trade causes instability due to interruption from external firms and competitors. Protectionism also comes in another form where the particular country establishes anti-dumping regulations meant to ensure that cheap goods and products are not brought into the economy thereby unleashing unfair competition to the local producers.
Exchange rates are also used as tools to ensure protection to country economies in a number of ways. For instance, China has recently been accused of pegging its currency on the US Dollar. To China, fluctuations that result from speculation are avoided thus ensuring stability in trade especially for its traders since there is some sort of predictability for what the near future of trade might look like.
One of the major drawbacks of the fixed exchange rate regime is that a country’s Central Bank or the Federal Reserve (for the US) easily loses control of the money supply due to the need for constantly intervening in the foreign trade market to ascertain that the BOP is maintained at 0. This may come with an added problem whereby the country’s BOP positions may be distorted, be it negatively or positively.
In conclusion, the article author is justified to decry the protectionist measures taken by the economies because it is not easy to ensure market efficiency where countries practice protectionism since every country will have its own measures hence bring more conflict in the international trade.
Sudeep, Reddy. “Trade Protectionism Rises as Economies Slow” Wall Street Journal, 2012. Web. <https://blogs.wsj.com/economics/2012/06/14/trade-protectionism-rises-as-economies-slow/>.