Protectionism and Free Trade Principles of Economics: Research Paper

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Protectionism and Free Trade

Principles of Economics:

A Discussion on Protectionism and Trade Liberalization

Rich nations make the rules. This comes as no surprise: Since rich people have significant power in their own nations it is to be expected that the rich nations should have analogous power in the world system. Just as surely as rich nations hold the balance of power in the world, it is just as certain that when they use this power it may or may not benefit developing nations. At first such power on the part of the developed nations is likely to seem blatantly unfair. However, the debate about the relative power in the world today between rich and poor nations is more nuanced than that: While wealthy nations may or may not make choices that are most beneficial to developing nations, it is also the case that developing nations can and often do make very poor choices for themselves -- choices that are generally considered to be poor by leaders of both the developed and the developing world.

Leaders in both the developed and developing world debate how international power should be apportioned: Should rich nations (which may be argued to have a high level of expertise) make decisions for poorer nations (which may not have the experience to make good long-term economic decisions) or should poorer nations have the power to make decisions for themselves, even if those decisions are misguided. One of the complexities involved in posing such a question, much less in attempting to answer it, is that implicit in the question itself is the idea that the developed nations have the right to be considered as part of the possible solution to the developing world's economic problems.

Beyond this debate over which nations should have the power to set policy for developing nations is the question of what would be the most appropriate methods for rich nations to use if it is indeed they who are to control the system. The most often used and most highly vaunted system until now is that of trade liberalization, especially when it is conducted through the kind of financial policies as those involving International Monetary Fund (IMF) loan programs.

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Under current IMF regulations, developing nations must abide by numerous and quite rigorous criteria before they can even begin to start the qualifying process of joining the rich nations' club: The ways in which developing nations are vetted by the IMF and wealthy nations can be overwhelming to developing nations that lack all of the economic and political institutions of the First World as well as the general societal stability of the developed world.

The gatekeeper for this process of receiving financial aid (primarily in the form of loans but also in direct grants and other forms of aid) is, of course, the International Monetary Fund. One of the main functions of the IMF is to ensure that developing nations comply with trade liberalization requirements, first, to qualify for financial aid or loans and, second, to have a reasonable chance of receiving them. Many critics of the IMF -- from both rich and poor nations -- argue that, regardless of intent, this policy is unfair to some, especially in light of the history of developed countries that relied on protectionist measures when they were in their own developing phase. These critics reasonably ask whether trade liberalization is, in fact, something that all nations must undertake. Given the unique structures upon which every country is built, and the different historical moments in which they develop, can there reasonably be any set of criteria to which each nation should submit?

This paper will analyze the various 'hoops' through which developing countries must jump in order to meet the standards imposed upon them by the developed world. Having examined the political, economic, and structural procedures, the paper with then analyze whether current trade liberalization policies are fair and ways to improve them in terms of the overall world-systems justice and the future relationships among the world's nations, and if so, to what extent. The descriptive phase of the paper includes, first, a history of the economics of trade will be described with an examination of several of the most important theories that have been developed to explain this sector of human economic activity.

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