All about Protectionism!

Protectionism is hogging the paparazzi around the world. Every other country is trying to keep away the wolf of recession by resorting to what seems to be the panacea of all economic ills and sins! Countries are secretly indulging into it and at their hypocritical best slinging mud on each other for committing the most heinous crime of free trade regime. 

Protectionism is an economic policy pursued by the countries in certain conditions wherein they shut down the doors for foreign goods and services and try to nurture their own by providing succor in various forms like subsidies for production and export, practising liberalisation, removing export tariffs and like. Various instruments in the hands of countries practising it are: Tariffs, Anti-Dumping Legislation, Export Subsidies, Import quotas, Administrative Barriers, Direct Subsidies, Exchange Rate manipulations. Sounding too many economic jargon? well .. it's got to be as the theme of writeup says but i will keep restraining myself from spilling over too many such nasty words!

Now, what I wish to draw your attention to is the last instrument: Exchange Rate manipulations. It is being talked about in the name of 'Currency Wars', the jargon first mouthed by the Brazilian President. It's actually the quest of countries to keep their currencies UNDERVALUED. Now you might think how humble and meek of them to do so! But hang on, in international trade, as much as in many other things in life, ALL THAT GLITTERS IS NOT GOLD! Keeping the currency undervalued means one dollar can buy more of their currency and hence their exports are cheaper in the international markets and hence are more sought after by the consumers. [Aren't humbleness and meekness virtue?] So,countries which rely on exports heavily for their economic growth [like China] are doing all to keep their currency the most genteel of them all. Well, consumers (developing or developed countries') want products. Last thing they bother about is the country of their make[unless obviously there's is someone like our own Bapu goading them to relinquish any things attached with a foreign name]. But, it does hurt the developed countries to have mammoth trade deficits with developing countries, both on economic grounds and self esteem and not to mention that it makes them insecure about their fragile dominance in rapidly changing world. 

Some countries especially China have these aggressive export policies that keep on promoting their export at not so nominal costs in domestic economy. In China there's raging inflation and the government is hard pressed to take corrective actions, but still the Renminbi remains meek. China has been accused of practising unfair monetary policies and distorting the international trade by many countries including the US, India. Such policies force other countries (Brazil, Argentina for their agricultural exports) to follow suit in order to protect their exports and hence jobs at home, economic growth from being crippled. I wonder China's eternal dream seems to be making every human on the planet a consumer of Chinese goods. At once, the flashes of me searching souvenirs in Perth come up when I found EVERY SINGLE ARTICLE China made! (God! was I mucking around in Beijing?). Same was true for all other shops I happened to visit there. 

Having said all that, it needs to be admitted that Protectionism ain't bad completely. It is very much needed for a fledgling economy to stand on it's feet and compete with the grown ups around. Every country including the US [the hallowed pilgrimage of Capitalism and Free Trade] have practised it at some point in the past and obviously now. Protectionism is the only solution to:

• Protect Jobs (and save the country from total collapse) in the time of Recession
• For Public Good (as in case of WTO approved protectionist measures for developing countries)
• For letting economy become Self reliant

India practised Protectionism after Independence to allow the non-existent Indian industries to have a solid base so that country is not heavily banked on imports and indigenous industries can hope to compete with the best in the world in coming future; like it finally was allowed to do in 1991. So, in a way Protectionism was the first step towards Globalisation. How ironical! The US did it in pre-Regan era and is doing now. In the trying times of recession every country needs to offer some level of protection to indigenious industries to keep them from crumbling down. It's their right!

But, we also do know that doing what's best for oneself doesn't necessarily lead to the commons good. (remember the Commons Dilemma?) Hence, the trick lies in reining in the Protectionist tendencies a little to allow for those actions which ensure that the world economy also does weather the crisis because the fate of each country's economy is intertwined with that of the world's. G20 summit recently tried to bring the developed and developing on a common ground but couldn't succeed. The developed countries need to show leadership  and take the developing economies with them in coming up with a common monetary policy which not only supports the growth of single entity but more importantly ensures the deliverance of the world economy as well.

cheers
TBS