Calls for Protectionism Assignment Example | Topics and Well Written Essays - 500 words

Calls for Protectionism - Assignment Example World Trade Organization (WTO) advocates eliminating tariff and nontariff barriers to international trade and 157 countries in the world are its members. These governments are committed to follow WTO tariff guidelines and formulate trade friendly policy environments in their countries. Tariffs constitute a substantial source of protectionism in the world. In 2008 imposing tariff barriers was constrained by WTO agreements. Â  Subsidies which reduce the cost of producing automobiles enable decreasing their market prices. Low price can gain a competitive advantage in the world market while increasing the welfare of local producers. It also affects the welfare of producers and consumers in abroad. This is not a viable economic solution because subsidy incurs a cost to the government. Free markets which have no price distortions are preferred in economic theory because resource allocation is optimum there. Producer subsidies which create price distortions in the market can also misallocate the resources in these countries and subsequently worsen their already contracted economy. Â  Protectionism compels local consumers and producers to depend on each other without facing influences from abroad. Thus protectionism avoids economic impacts of different natural resource endowments across countries. Countries can grow independently, self sufficiently and politically strong under protectionist policies. However, free trade enables efficiently using of limited, natural resources. Efficient allocation of depleting natural resources is a major challenge in front of the world today. Therefore eliminating the barriers to free trade at present is more important than ever in the world history. Â  5. The volume of world trade rebounded sharply in 2012 on the back of a fairly modest growth rate in the world economy.