Bitcoin Forum

Is economic protectionism bad policy in general?

Do we gain more by sending jobs to other countries where the labour is cheaper?

Looking back over the past 15 years of globalization, has the US gained from outsourcing or in retrospect would have it been better to try to keep those jobs at home?

I think that we need to find a balance between these two.
That's the best solution.
Saving money while still heling the local economy.
Globalization could be harmfull to the local ecomy under certain circumstances.

Subsidy and protectionism are economic weapon.

It takes time to build up an infrastructure for an industry, killing your competitors with subsidy then raise the price up after all your competitors are gone. Robber baron and standard oil have done it in the past, it is now being done on country level.

In Brazil they set an electronics import tax so high that companies are setting up factories to produce the products right there in Brazil.

It was brought to my attention today by a new story about $36 million worth of phones and tablets being stolen from a Samsung factory that they had set up in Brazil to avoid those import taxes. So some jobs were created as a result

Is this type of policy good, or is it going too far? Sounds crazy at first to have such high taxes, but if multinationals are coming and setting up factories, is it a net gain?

Do you know of any modern of current examples of a country or a corporation doing this?

Solar companies in China seem to be doing this. And since Chinese YUAN is being subsidized by average China citizen, one can also argue all the producers/exporters in China are doing it to kill their competitors abroad.

What are they doing exactly? Producing solar panels below cost in order to push out competition? How does a stronger Yuan help them in this regard? I thought that a weaker currency benefitted exporters?

I have heard some things about the Chinese solar industry, but I'm not exactly clear on what the situation is.

Protectionism sometimes is needed to prevent financial hemorrhaging, such is the case of Iceland(due to oversized banking sector coupled with 2008 crisis)and Japan(has no natural resources, and is protecting it's farmers?). But these are due to national borders, and protectionism is mostly a tool of nationalists and advocates of Autarky(you decide whether good or bad). Protectionism although is prevents capital from flowing to highly developed regions to low developed ones, which capital is needed to build foreign industry, such is the case of Japan(ironic), Korea, China, Vietnam, and etc.

Pros:
Protects domestic industry from foreign competition
Holds wealth domestically
Gives citizens and companies of said country higher privileges in the market

Cons:
Furthers poverty in under-developed regions
Makes prices generally higher
Gives non-citizens and foreign companies lower chances in market

Developed country should let the investors do whatever they want. Money and profit invested abroad will be taxed and bring home the same benefit as having a domestic industry.

When you say "money and profit abroad will be taxed" are you referring that those will be taxed in the country they are being invested in, or in the home country? Just curious as to which one, or both(USA)?

Free markets bring peace and prosperity. Restrictions on free markets bring conflict and economic meltdowns. Bit coin gives us a shot at a truly borderless and free economy. 

It may be a shorter list of those that aren't.  Certainly most countries are involved in some protectionism and subsidies to some industry or another.  The entire defense industry is one massive form of subsidy.  Agriculture is largely subsidised in developed nations and in many developing nations.  Individual industries or companies can enjoy subsidy by way of targeted tax breaks, or outright cash incentives.

Back to the original question: Do we gain more by sending jobs to other countries where the labour is cheaper?  

Its a very interesting question that often polarises people along ideological lines.  From a pure economics point of view protectionism is bad, and letting cheap labour take the jobs is better for the wider economy as a whole as prices are kept down while profits kept up.  win all round.  But from a social-economic point of view, where peoples livelihoods are considered of course its not so black and white with winners and losers.  

The idealist would hold that people can skill up and take better, less manual jobs, and we have more leisure time.  The realist will note that leisure time costs money (what can you do for free these days? not alot), there aren't enough "better" service/office jobs to go round, some people dont have the skills and if we are honest aren't going to no matter how good you try to educate (face it people have different abilities and aptitudes).  So some people will be left behind.  Protectionism is ultimately an attempt to redress this imbalance, but its is contrary to all society really wants (all the benefits of free trade), so it gets hidden from view with politicians, and most economist, pretending it isn't going on.

 

The thing that gets me is that I can imagine that in the modern world where we have multinational corporations who are extremely adept at paying as little tax as possible, that even in the pure economic and idealist view points that you outline it can still be a net loss for the country and people. Think of it like a game between three economic actors: the multinational, the country, and the people of that country. Ideally what would happen is the multinational would move jobs overseas and benefit from lower production costs, the country would benefit from more taxes from the increased profits of the multinational, and the people would lose some income in the long term but gain from the higher tax base of their country. Total economic production should increase and I think this is the way I think a lot of people think about it.

However, what I think is a more likely scenario in modern times is that the multinational reaps all the economic gain and very little of that gain if any is shared with the country or the people losing their jobs. The total amount of loss is very unlikely to be made up by the multinational since the accountants have devised some incredible clever systems for multinationals to avoid sending profits home. The global economy gains of course.

So what I suspect is that it's actually irrational for some countries to not have protectionist policies designed to maximise their economic gain. And part of the problem is, especially in a place like the US, is that it's the multinationals who are buying government officials to bend policy to their gain. And I'm pretty sure that a large part of people in the western world as actually lost quite a bit in the last 15 years of globalization. Some people have gain tremendously, but lower and middle class people? I find it pretty unlikely that they have benefited economically, despite being told for years that they would. Globally many have benefitted, but I think some governments are playing a losing game economically speaking.

It isn't just Solar companies in China but much of China's exports are subsidized by the chinese government and allowed to be sold at below cost. Another good example is the chinese textile industry

Leave it up to the free market. Made in <your location> is a valuable marketing tool and will be used as such. There is also the matter of "freshness" (potentially, depending on product) and shipping costs. These serve as adequate incentives to purchase locally.

Does it not have to do with the evolutionary process of an economy ?
In some cases protectionism is preferred for a temporary measure as the economy would just be too hars for the people ?
But then again too much protectionism is no good for the economy and it people... As competition will decrease.

A fine balance between both is needed to guarantee to living standards of the people themselves.

In the evolutionary process of an economy of a nation, yes and I agree on most of this. But protectionism when I was referring to furthering poverty is that protectionism tends to keep money in a closed system making the people rich in said country at the expense of people living in poorer regions of the world as their labour isn't paid for at all. Foreign investment causes economic growth in poor nations, a simple fact that even Krugman acknowledges.

protectionism in economic policy is not entirely a bad policy, there are some important points derived from the policy.
these points, among others: the policy can protect the domestic industry by raising taxes overseas industry and lowering taxes in the country. so that the domestic industry can be developed, labor can be absorbed more, and of course with higher levels of well-being, it is because the domestic industry employers do not have to think of a large tax payment ...
meanwhile with the policy, the government does not have to send its workers abroad with very low wages ....  :P

If you were low IQ and from a poor family you would like some external help.

That is not constructive.

At some stage, I hope globalization means free movement of goods, capital as well as labour. :)

This a good question i often ask tomyself...
Someone spoke about brazil and i think it's an intresting exemple, they have something like 110% taxe on It importation... well computer stuff are expensive and internet connection is generally bad there. for instance i found better connections in bolivia than in brazil which is probably 8x times richer...
Poeple go aboard or buy computer on the black market so obviously you can t go 100% protectionism.
Now this policy also helped to locate company inside the country in other areas.
That is to say i have no idea what to think of that exemple.
Also it is an isolated case and i doubt the rest of the world taxes 110% on brazilian soja exportation. If so it might save a bit of amazonian forest at the cost of thousands of jobs...

Now opening the borders tend to concentrate production in the most efficient place of the world regarding wages and taxes. China being the factory of the world is something i do not like, centralisation is a bad thing.  It increase traffic and bottleneck, makes the world more vulnerable and create unbalanced country with over-specialisation.

I understand the devlopment due to capitals going aboard which is certainly a good point.

All in all i just can t make my mind on that point... i would guess that the answer is inbetween...

When you are poor you want protectionism.

When you are poor, you need more opportunities.
Globalization probably will open up more opportunities to the poor than a nation can ever provide.

You should look back in the past 200 years of globalization. Was there any profit for your country?

You usually fell globalization while embargo's start. Currently is popular Russia embargo. In my country now we have to much apples. Was jsut the case, so EU bought them to be give free to homeless, schools, ...
Next will be other industry.

When you stop globalization BDP lowers.

Can you give us some opportunities globalization delivers? because i know is the only ones benefiting are foreing people taking all the welfare.

Globalization is distorted by embargoes, import duties, technological barriers, etc.

Yes it is, and when they happen you actually fell how would be without Globalization.

There are weak people out there that will never have the means to survive in this competitive world by themselves, they need help by call it state or call it whatever, but they will always need some sort of help. If you don't see this you are delusional.

It's all a sort of economic weapon, in a sense.  If we really wanted to benefit everyone, we'd find a good balance between the two.  Global trade increases wealth.

It's bad for everyone except (and only partially and in the short run, depending on the kind of protectionism) for those that are protected by the government.

Governments exploit sentiments to indulge in protectionism.
I doubt if the US will be better off if they keep low paying, call center jobs at home.

What precisely is the problem with foreign people collecting welfare?

Protectionism is an interesting subject. It's a rallying around behind the state in times of either capital expansion or capitalist decline. It can't possibly be a communist thing because it is predicated on international capital and also internal capitalist relations. Unless you think hermit kingdoms are some how socialist but if you think that then you're probably intellectually deficient in several areas. It's almost as if people posting here don't realize that capitalism is a world system

Economic protectionism is alive and well. In fact, I would say it's rampant.
However, unlike poor Asian or South American countries, first world nations are more circumspect and discreet in the protectionist approach.

For instance, in the face of the mighty Brazilian sugar barons, the United States enforces a strict 28% import limit of sugar, retail pricing controls, fertilizer discounts and other indirect support mechanisms (fuel subsidy, preferential freight rates, etc.).

If the Brazilian Congress even dreams about enacting anything similar for some other agricultural product, you can be assured that the WTO will be swimming in war paint before their plane lands in Brasilia.

protectionism doesn't protect anyone but government cronies.
its basically a policy that forces the population at gun point to buy inferior local products (if they weren't inferior no protection would be needed).

economic protection can benefit the domestic economy, which the government imposes a very high tax for imported goods and impose lower taxes for goods exports, the domestic industry will grow, while the lack of protection into this economy is that investors will be more many industries set up in the land of others which of course requires a very large investment funds ...  8)

no it can't benefit anyone, if the local industry needs protection its because they produce bad products that nobody wants to buy.
the only way to sustain such an industry is by protecting it forever, because as soon as the protection goes away the population goes back to buying the good foreign goods and the lousy local industry goes bankrupt.
forcing your fellow countrymen at gun point to buy lousy local products will never bring prosperity.

Protectionism is evil.  It stems from an irrational bias against foreigners and foreign countries.  It is just as irrational to restrict trade between California and Nebraska as it is to restrict trade between the United States and Canada.  When people are allowed to trade across borders, both sides benefit.  When restrictions are placed on trade, both sides lose.  The US has a trade embargo with Cuba.  "We're going to show you that capitalism is superior to communism by restricting trade with you!".  The result is that Cubans live in poverty and they are one of the few remaining strict communist countries in the world.  Meanwhile the US trades with Russia and China and both those countries have softened their stances on communism.  US travelers can't legally vacation in Cuba.  Cubans lose and US tourists lose.  To say that sweatshops are bad without comparing them to the alternatives the workers in the sweatshop have is to not see the full picture.