Free Trade and Protectionism

The key arguments in free trade is that free trade in essence requires countries to focus on what’s called their comparative advantages –those goods and services which they’re best placed to sell on the world market, furthermore free trade requires countries to eliminate their trade barriers such as tariff, quota, tax, etc.

The key arguments in Protectionism is that the government imposing trade barriers or restriction, in form of tax, tariff, quotas, subsidy, etc in order to protect their small industry to be survive in global competition, while in the other side the country that imposing the protectionism get the advantages in form of income from tax, quota, tariff etc. There are five classical arguments for protection; first is optimal tariff, which aimed to improve countries terms of trade. Second, development of infant industry that use as measurement to allow an economy to develop its domestic industry. Third is tariff for raising government revenue. Fourth, the use of tariff to protect industries that considered crucial for employment areas. Fifth, strategic trade policy, which means tariff maybe used as a way of shifting balance of trade terms in a favorable direction and allowing a country greater production possibilities and access to international market with the long term intention of capturing international market share away from others.

The main different between free trade and protectionism is that free trade will beneficial for both parties-seller and buyer-if both of them are in the same level of economic, while in protectionism, both parties will get the benefits if they are engage in trade with different economic position
Both System sounds too good to be true, but if we look carefully, it is not as good as we thought. Free trade requires countries to be focus only to their comparative advantages, while other sector left behind. For example, countries in Asia are strong in producing Agriculture product. They are required to produce it, and ignoring the manufacture and high technology product, and as the result, they cannot compete with western countries, because price of agriculture product is very cheap compare with high technology product produced by western countries. Almost the same thing happened in protectionism, western countries give very high trade barriers in form of tax, tariff, etc to protect their own product that results unfair for the third world countries, because they cannot penetrate the market.

The key debate about free trade and protectionism according to me is not whether free trade is better than protectionism or conversely, but what kind of system in trade that may benefits and can guarantee benefits both seller and buyer, or in the other word, the debate supposed to be what kind of system that can bring mutual benefits among the traders.

Globalization must promote equally among nation, and the application of free trade and protectionism must fulfilling those requirement. However, in fact, there is a big gap between Western countries and third world countries; in the other word, only the Western countries get the benefit. While the third world countries suffering from the trade. Crisis in Asia for the past few years was a real implication of the globalization that in the end it brings poverty.

The objective of International trade itself is gaining mutual benefits among the traders, and what’s happen now, there are a massive debate among economist about free trade and protectionism, but in fact the main case in the debate is about what kind of system that gives traders benefit, or win-win solution not a zero sum game.

Great crisis in Indonesia has put Indonesia in unstable economics condition; the relevance of the debate in Indonesian economics is that how Indonesia can get benefits from the global market. Because in fact by the time of crisis, Indonesia’ balance of trade experiencing deficit, Indonesia too much imports goods from other countries, while the goods that supposed to be exported cannot compete with other competitor because the price of goods in Indonesia is very expensive as the impact of inflation. Regarding the debate on how country’ effort to get mutual benefits in trade, Indonesia should use the combination of free trade and protectionism. It means that Indonesia can do free trade with countries that have the same economics position, for example in countries in Asia and Africa. However, in the same time Indonesia imposing trade barriers and restriction if Indonesia trade with the countries that have different economics condition such as western countries.

The most rational things happened concerning the relevance of free trade and protectionism for Indonesia economy is that rising of national debt. Regarding Indonesia’ balance of trade experiencing deficit, Indonesia will keep borrowing money in order to support the local industry.
Indonesia as one of third world countries finally cannot have great progress if Indonesia still focusing their trade on agriculture product and regardless manufacture and high technology product. Consequently, in order to be survive in the competition Indonesia must develop other sector beside agriculture, afterward Indonesia can win and compete globally.

Herry A Pradana

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s