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The paper discusses the major forms of protectionism, including tariffs, quotas, anti-dumping laws, and the deliberate manipulation of exchange rates. The purpose of this paper is to establish the benefits of free trade, to examine the reasons and effect of protectionist policies, and to evaluate the rationale behind trade protectionism. The methodology used in this paper includes review of the literature and empirical studies published and descriptive statistical analysis of data published by international organizations. The paper also evaluates how the trade restrictions are harmful to the economies of the trading partners and challenges the popular rationale for protectionism.
Keywords: protectionism, international trade, WTO, crisis, bailout
As the Global financial crisis stared right in eyes of the world economy in Sep. 2008, the issue of trade protection got renewed. It affected much of the world and therefore has rightly been called as a global crisis. Though much of the developing world escaped from entering actual recessions in the sense of actually having negative growth, yet the developing world's decline in GDP from their precrisis levels of about six percentage points was indeed a matter of concern. It became a matter of attention in media and effect the rise of protectionist pressures in the world. Such pressure may trigger high protection as reaction of the crisis. After the commitment made by G20 leaders on Nov. 15,2008 to "refrain from raising new barrier to investment or to trade in goods and services, imposing new export restriction or implementing World Trade Organization (WTO) measures to stimulate exports." In the backdrop of it, a revival of trade protectionism will surely hamper the recovery process and further affecting already weak trade flow & world demand.
Forms of protectionism
Protectionism is defined as any attempt to restrict the free flow of import into a country. The protectionism springs from a large variety of market-distortions, leading to effect on medium and long run costs, in particular for the implementing countries. Subsidies to domestic industries including direct state-aid, guarantees, and bailouts artificially push down the costs for local firms while, tariffs or antidumping and countervailing duty orders artificially push up the cost of imported goods and services. These strategies also carry the inherent risk of less welfare for all as traditionally...