Globalisation and Trade Restrictions: Advantages and Disadvantages

This section explores the complexities of globalisation and the impact of trade restrictions. While free trade is often lauded for its benefits, governments sometimes impose restrictions on trade. This unit examines the potential advantages and disadvantages of such interventions.

What is Globalisation?

Globalisation refers to the increasing interconnectedness and interdependence of countries through the exchange of goods, services, capital, information, and people. It is driven by factors such as technological advancements, reduced transport costs, and the breakdown of trade barriers.

Trade Restrictions: Types and Examples

Governments use various methods to restrict free trade. Common examples include:

• Tariffs: Taxes imposed on imported goods.
• Quotas: Limits on the quantity of specific goods that can be imported.
• Subsidies: Financial assistance provided by the government to domestic producers, giving them a competitive advantage.
• Embargoes: Complete bans on trade with a particular country or for specific goods.
• Non-tariff barriers: Indirect measures such as complex regulations, standards, and quotas that hinder trade.

Advantages of Restricting Free Trade

While often viewed negatively, trade restrictions can offer certain advantages to a country:

• Protecting Domestic Industries: Tariffs and quotas can shield domestic industries from foreign competition, allowing them to survive and grow. This can be particularly important for nascent industries or those deemed strategically important.
• Job Creation: Protecting domestic industries can lead to job creation within those sectors.
• National Security: Restrictions on certain goods, such as military equipment or essential resources, can enhance national security by ensuring domestic supply.
• Infant Industry Argument: A temporary protectionist policy can help new industries develop and become competitive on the global market. The idea is that a young industry needs time to grow before it can compete effectively.
• Protecting Consumers: Restrictions can be used to protect consumers from unsafe or substandard imported goods.

Disadvantages of Restricting Free Trade

Trade restrictions generally have significant drawbacks:

• Higher Prices for Consumers: Tariffs increase the cost of imported goods, leading to higher prices for consumers.
• Reduced Choice for Consumers: Restrictions limit the availability of imported goods, reducing consumer choice.
• Retaliation: Trade restrictions often provoke retaliatory measures from other countries, leading to trade wars and economic damage for all involved.
• Inefficiency: Protectionism can lead to inefficient allocation of resources, as domestic industries protected from competition may not be as productive as their foreign counterparts.
• Reduced Economic Growth: By hindering trade and competition, restrictions can slow down overall economic growth.
• Distortion of Global Markets: Trade restrictions disrupt the natural flow of goods and capital, leading to distortions in global markets.

Table Summarising Advantages and Disadvantages

Advantages	Disadvantages
Protecting domestic industries	Higher prices for consumers
Job creation	Reduced choice for consumers
National security	Retaliation from other countries
Infant industry argument	Inefficiency in resource allocation
Protecting consumers from unsafe goods	Reduced economic growth

Conclusion

While trade restrictions may offer short-term benefits to specific industries or countries, they generally lead to significant economic costs. The long-term consequences of protectionism are often detrimental to overall economic growth and consumer welfare. The benefits are often outweighed by the disadvantages, making free trade generally the preferred policy.