Protectionism Measures • Voluntary export restraint • Deliberate excessive custom procedures • Trade embargo
FORUM FOR NEGOTIATION
Voluntary Export Restraint • A government imposed limit on the quantity of goods that can be exported out of a country during a specified period of time. • For a VER to be effective, the two countries involved need to be major trade partners of each other hence the large country analysis.
In a large country context, where the actions of one partner affects the world price and hence the TOT for the other, quotas lead to different welfare outcomes from VERs.
In terms of price effect of VER, we take USA is an example of an exporting country. In the US market, there is excess supply. • This leads to a reduction in price. Lower price will reduce US supply and raise US demand. Hence, reducing in US export supply.
On the right, the graph illustrates the exporting country welfare effect: Consumer Surplus= +e Producer Surplus= - (e + f + g + h) Quota Rents= +(c + g) National Welfare= c - (f + h) World Welfare= - (B +D) - (f + h) For the welfare effect of VER, PFT is the free trade equilibrium price. Importing country price will rise. Since the demand equals to quota level, exporting country price will fall. Export supply equals to quota level. As shown by the graph on the left, the welfare effect of the importing country includes: Consumer Surplus= - (A + B +C+D) Producer Surplus= +A Quota Rents= 0 National Welfare= - (B +C+D)
An example of such a voluntary export restraint agreement was the 1981 VER deal between U.S. and Japan. • The Japanese car makers "voluntarily" reduced their shipment of cars to the U.S. The agreement was designed help protect and resurrect the car industry of the U.S.
Deliberate Extensive Custom Procedures • Extensive procedures are implemented • The objective is to protect a country from the pitfalls of recession.
To protect knowledge workers • Eg. America • LUMP OF LABOUR FALLACY • Eg. Opposition to immigration and migrant workers.
Displace existing workers • Stimulate economic growth • Increased demand • Increased employment • Dislocation in local labour market • Drive down wages • Reduces purchasing power • Better union organisation & legal protection against exploitation • (NOT our objective) • Unfair. Locals face increased job competition.
PROTECTIONISM = HOSTILITY TO IMMIGRATION • Aims to stop labour from moving across the world. • Adam Smith. Not to argue against developing economies protecting fledgling industries, or to say that our current free trade system is fair, or even very free.
How to deal? • Increase demand, not pitch workers of one country against those of another in a competitive protectionism • As recession does not counter it.
Trade Embargo • Apolitical move by one country against another • A strategy to make another country either do something or refrain from doing something
The country imposing the trade embargo will prohibit most or all people in their country from doing business with the country against which the trade embargo is imposed. • It may even mean that citizens from the imposing country are banned from visiting the prohibited country.
One of the most famous trade embargoes in recent times is the trade embargo the United States holds with Cuba. • The embargo was established in the hope that prohibiting trade with Cuba would weaken the country’s economy to the point where Cuba would overthrow Fidel Castro and implement a democratic government. • Under the terms of the Cuban Democracy Act, the United States does not transact business with Cuba, and does not allow Cuban investors to spend money in the US.
Arguments Against the Embargo • It actually helps keep Castro in power • What's good for China is good for Cuba • It mostly hurts the people it's supposed to help
Arguments for the Embargo • Lifting the embargo will strengthen Castro's government • Cuba's trade with other Western countries hasn't eased repression • Easing the embargo before Castro agrees to change sends the wrong signal
By: Wei Yang ZeHao Farah Amira Ling Xin NurAsyura