Sneak Preview Into The Book:
Foundations Of Shipping Operation And Transportation Management. Written By Dr. Obed Ndikom
Number of chapters: 22
Number of pages: 486
Publishers: BookMakers Nigeria
Book for Presentation on May 12
Protectionism Policy in International Trade
Sneak Preview Into The Book:
Foundations Of Shipping Operation And Transportation Management. Written By Dr. Obed Ndikom
Number of chapters: 22
Number of pages: 486
Publishers: BookMakers Nigeria
Book for Presentation on May 12
Protectionism Policy in International Trade
In a world where everything cannot be seen to be perfect, but in a world of politically motivated nation states, trade cannot be taken for granted. This is because the countries involved in the international trade transactions at a particular point in time should be able to believe that trade is in their best interest than for them to close their borders which at the long run will be unprofitable to them (Ndikom, 2013). Protectionism policy or isolation is been seen as a policy of a nation not trading within the confines of the international trade or limiting trade by tariffs or quotas (Stopford, 1997). This policy as explained above seeks to exclude the goods produced by foreigners from the local markets in order to protect the livelihood of local producers at the end. Protectionism can look very attractive to a community which feels that, its livelihood is under threat. One of the reasons many nations seem to adopt these policies within the confines of their national boundaries is specifically to protect local industries and resources (Stopford, 1997). Obviously, it may seem that valuable raw materials are being exported by some unprincipled trade, leaving nothing for the local inhabitants. This is because, it is expected that when reserves are all gone through the above process, the country will be left in poverty. Interestingly, another point is to protect local jobs and skills which have been developed over the years (Stopford, 1997). For instance, if other dry docking centres and other shipyard service depots, on which thousands of jobs depend, is about to be closed down because it cannot compete with foreign shipyards. The issue of offering subsidies or passing laws preventing some of these imports from foreign countries could be a natural response. This is because, if this policy is not prevented as it should be, it means that currency reserves will drain away and the country will be left in a poverty situation, which may not be in the best interest of the nation concerned (Ndikom, 2013).
Principles of Free Trade
This principles state that, cheaper products should be allowed into a country without undue restrictions, as it is better to import goods of cheaper values than to produce same goods with higher values and cost (Ndikom, 2013). This is because, free trade policy of nations became a major political issue, centering on the question of whether the import of cheap products should ordinarily be permitted or not in a precarious situation. It became obvious that manufacturers in the towns were in favour because they wanted cheap-food for their workers, but the domestic landowners, who stood to lose their protected market, were seriously opposed to it at the end (Stopford, 1997). In today’s business world, the principles of free trade are broadly accepted through the General Agreement on Trade and Tariffs (GATT), but the protectionism remains a live issue. It is very obvious to state that, even where trade is relatively open, many countries protect inefficient industries whose output, in a free market economy, would be replaced by trade. In the face of these often strongly held views, one of the challenges facing economists is to show that free trade is always in the interest of the trading parties. Over the years, the economists have been very successful in the past and had came up with a very convincing proof that trade is beneficial (Stopford, 1997).
The Theory of Absolute Advantage
Adam Smith in his strong proof that trade is obviously beneficial in the theory of absolute advantage, argued that, nations of common interest are better off if they seem to specialise, while trading their surplus production for the other goods they need. He postulates in this regard that, specialisation allows the said nation to become more productive and also benefits everyone, because, world’s limited economic resources (factors of production) are used more efficiently. This is because, goods are cheaper as trade permits division of labour, allowing more to be produced with the same resources. This is very obvious so long as transport costs do not exceed the cost saving in production, trade is bound to be beneficial (Stopford, 1997).
Principle of Trade Theory
This principle seeks to explain why some countries trade more than others. It also seek to justify this concept by the level economic activity is presented and also to a lesser extent is based, by land area, population and natural resources. Another possible justification could be reflected on Gross National Product – GNP, but these are just statistical relationships. It would be reassuring to know why trade increases under which this important relationship might breakdown. It is pertinent to note that, although, there is no single theory of trade because in reality countries trade for a variety of reasons, economists have come up with some principles which are useful in explaining the basic principles which govern trade globally (Stopford, 1997).
Resources Based Trade and the Heckscher-Ohlin Theory
Over the years, the global economic scene has witnessed growth and developmental progress through trade exchanges and commercial transactions that existed between nations of common interest (Ndikom, 2013). Obviously, one of the most important causes of trade from the Maritime/Shipping industry’s point of view is the basic fact that, different countries are endowed with different natural resources. The importance of resources was first recognised by trade economists who were looking for an explanation of what determines the comparative advantage of a country. The key issue here is the assumption of constant costs, which is one of the basic building docks by Ricardo’s Model (Stopford, 1997). It has been established that the theory of comparative advantage assumes that resources can be freely switched between the manufacture of different products without any form of loss of productivity. Eli Heckscher and Bent Ohlin both Swedish economists in the 1920s argued that productivity differences occur because countries have different endowments to factors of production between countries. They further also stressed strongly of the need for trade to be beneficial in that economic resources and unevenly distributed between countries (Stopford, 1997). The theory explains that each of the two nations involved in the international trade should obviously ensure that, each nation can export those goods whose production is relatively intensive in the factors with which they are well endowed (Stopford, 1997). They contended strongly that, it all depends on their relative factor endowment for each of these nations with common interest. However, the Heckscher-Ohlin theory suggests that, in a free world market, countries must make the best of whatever resources they have (Stopford, 1997).
Trade Based on Technological Differences
Since we are now in a global world ruled by creativity and reflects some form of idealistic economic postulation, it becomes evidently clear that one of the most potent reasons why nations of common interest engage each other on trade and commercial transaction is obviously anchored on technical innovation (Ndikom, 2013). In this explosive global transformation through communication and ideas generalisation, it becomes obvious that manufactured goods from each of these nations often require specialist investment and expertise. Once a particular company or country has become established in this area of innovation, it is difficult for others to build up sufficient volume of sales to break into the markets (Stopford, 1997).
In today’s global economic world, technical advancement is continuous. It is pertinent to note here that, any other novelty discovery by an individual or organisation based on technical innovation, hence such feat should be protected by barriers such as the high cost of entry as the case may be (Ndikom, 2011). In all, in the case of a particular inventions based on technical innovation, it is expected that the manufacturing rights may even be covered by a “patent” at the end (Stopford, 1997).
Trade Based on Differences in Tastes
This is one of the theories of the pattern of trade mostly in the international trade between nations of common interest. This is also seen as an exclusive pattern of inter-industry trade where countries import and export the same product. In the cases, the cause of trade is usually based on differences in tastes and preferences between countries (Stopford, 1997).
Cyclical Trade
In a global economic scene, where it is very obvious that demand is constantly changing, an important source of sea trade is the temporary local shortage of a product or commodity which could normally be obtained locally at the competitive price. The issue of temporary shortages may arise from business cycles in demand, mechanical failure, disasters poor planning or a sudden burst of commodity inflation which encourages manufacturers to build stocks of raw materials in these circumstances as pattern of trade suddenly changes (Stopford, 1997).
To be continued next week
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