Protectionism or Free Trade : Which Is Better?

Protectionism is defined as a kind of economic policy that attempts to limit imports or promotes exports by putting up barriers to trade. It is basically aimed at protecting local producers, workers, jobs and businesses in the country which is importing from the foreign competition. The tools of protectionism include the tariffs and quotas on imports, subsidies, tax cuts and other government regulations.

There have been various advocates of protectionism who have argued their case on the two premises to support it. The first argument deals with the case that the developed countries face unemployment and low wages due to the lower cost of doing business in low wage countries. The second argument rests on the fact that most countries carry to their domestic audiences while forming economic policies through a mixture of subsidies and quotas for enhancing their trade. Hence all this leads to a rubbery trade deficit for developed and higher wage countries.

However, the arguments favouring protectionism stated above are shaky on a whole lot of reasons and protectionism is not seen in good light by most economists. Primarily protectionism distorts markets and results in efficiency loss.

Source-Indian Express

According to some estimates, India’s growth rate could be affected by as much as 1.2 % due to protectionism. The western countries allege that Indian technology companies have taken away their jobs. As a result companies such as Infosys, TCS, Wipro etc have announced that they will hire majorly Americans over the next two years. The IMF has already sounded a warning bell by specifying that the developing countries such as India, China and South Africa gain to lose the most which may lead to financial stability risks in these economies and capital outflows creating further demand.

Free trade
Source-Indian Express

Hence the solutions to the above problems lies in removing barriers to trade and promoting free and open trade that is universal, rules based and open which should contribute to global growth and sustainable development goals. Hong Kong is a prime example of a country practising free trade and still becoming wealthy. Thus there should be concerted efforts to enhance collaboration, cooperation and efforts should be made to increase productivity, quality and competitiveness.


But those delecaties can be resolved through better income support benefits, retraining for jobs or for relocating those workers displaced by international trade than by doing protectionism. Thus it is in the interests of all nations concerned that free trade rather than protectionism becomes the solution for the world economy and sustained growth.

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