Economics

International trade is based on the premise that many countries, like firms specialize in making certain goods. In so doing, different countries end up producing more of a certain product than they need and then export what is not consumed. The product that a country will specialize in producing is often based on the fact that every country is endowed with different factors of production. This means that there are differences in raw materials, climate, capital equipment, labour which in effect lead to differences in cost of production. When one country has absolute advantage in the production of one good compared to another, production of different products in both countries is maximized trading will then also be maximized as the two countries exchange their different products and in the end both countries gain. However absolute advantage is not all that is considered in international trade. Often a country will be able to produce a good at a lower opportunity cost than another country. This is referred to as comparative advantage. In international trade if a country is to get any gains from trade, then the company should export the goods that they have comparative advantage and those that they have comparative disadvantage (Sloman and Hinde, 2007 Takatoshi and Krueger, 1993).
Complete free trade is an issue contemplated by many countries though very few countries actually achieve it (Bhagwati and Irwin, 1996). While free trade is not usually completely banned it is generally limited with countries trying to decide whether they should have restricted or free trade in certain sectors, whether certain restrictions should be relaxed or tightened. The ideal thing therefore is for countries to weigh the costs against the benefits of altering or even introducing restrictions (Bhagwati, Feneestra and Irwin, 1996). The current global financial crisis has seen countries increase protectionist measures. The United States, for example has introduced a Buy American provisions in its efforts towards economic recovery (China Daily, 2003). India has increased tariffs on its steel products and Argentina has had import license requirements introduced (Andrews, 2009).

Several arguments have been made against free trade. Some of these include that the comparative advantage theory is outdated as an advantage for free trade. Herman Daly (2007) states that the comparative advantage is undercut by the fact that in todays global world capital is highly mobile and generally has the tendency to flow in the direction of low costs, pursuing absolute advantage (Daly, 2007). Protectionists further fault the model of free trade as being protectionism in reverse that is by adopting a tax policy that protects manufacturers in foreign countries from competition by domestic companies. When revenue is ruled out on foreign products then that means that the government is relying largely on domestic taxation for its revenue, a large measure of which falls on the domestic manufacturers. The infant industry argument is also another argument put forward by proponents of protectionism, where it is argued that imposition of tariffs makes an allowance for domestic industries with potential to grow and become competitive within the international economy.

Proponents of free trade argue that protectionism harms the very people it seeks to protect. Magee argues that free trade unlike protectionism creates more employment than it destroys by allowing countries to specialize. Friedman and Krugman, both Nobel Laureates in economy argue that free trade is helpful to employees in developing countries even though the working conditions are not as good as those in developed countries (Krugman, 1997). This, they assert is because of the growth of other jobs in other sectors which in effect lead to better labor standards, creation of competition and in the long run improved wages and better living conditions (Krugman, 1997). As far as international trade is concerned, the use of protection measures to promote nationalist interests creates the danger of starting trade wars and generally stalling global trade which in the long term is disruptive to the global economy.

Argentina has in the recent past been using protectionist measures in a bid to improve its economy that has been slowing down, partly due to the global financial crisis. Most of these measures have been in relation to Brazil, Argentinas major trade partner. The Customs Director in Argentina made an announcement in October 2009, where there was an additional 120 products that would be put on a list that carried reference prices fixed by the Argentinean government. The list is used to designate the goods on which sanctions would be placed if they enter Argentina at a price cheaper than the reference price (MercoPress, 2010). The government argues that this is an anti-dumping strategy to reduce dumping by the exporting country. The list includes shoes, domestic appliances, farm machinery and textiles. Other than this, Argentina has also introduced import licensing and Brazil claims that Argentina has been attempting to slow flow of goods from Brazil by delaying the issuing of import licenses (MercoPress, 2010).

Argentina has been tightening restrictions following the fall of the Brazilian real in relation to the US dollar. With the falling of Brazils real, the prices of imports from Brazil has decreased and Argentina would be faced with a problem of a flood of imports hence the sanctions on imports on Brazil. This is especially because of the fact that the Argentinean peso remained largely stable in relation to the US dollar. Following Argentinas import barriers, there has been an increase in the trade surplus of the country though there has been reduction in the total trade volume. The imports from Brazil fell by up to 44.5 in the first half of 2009 while exports to Brazil fell by around 20.1 (MercoPress, 2010). Other benefits that the trade measures have had include saving the jobs of many Argentineans who would otherwise have lost them as companies foreclosed and also saving the companies themselves. Unfortunately this has led to soured relations with Brazil and the threat of retaliation from Brazil (Merco Press, 2009).

The United States imposed tough duties on Chinese steel imports. China took the case to the International Trade Commission contesting the decision to impose these duties. The Chinese Ministry of Commerce felt that the US was shifting blame for the current economic hardships to its imports. The ITC however ruled in favour of the US and the ruling would bring about an increase of between 10 to 16 per cent. The imposed duties are definitely a protection measure and the US commerce department claimed that the Chinese dumping was harming the US steel industry (Rapperport, 2009).  The Steel Manufacturers Association report that China has been exporting at below market prices, leading to a decrease in US  steel tube and pipe production of up to forty per cent and losses of thousands of jobs. In the period 2006-2008, Chinas steel pipe imports had increased by 203 per cent. The Chinese were being accused of dumping in the US market. The ruling by the ITC was a disappointing one for China and there was some consideration being given to appealing at the WTO.
In both cases, the US and Argentina have used protectionist measures to protect their domestic industries and employment for their people. The results of these measures however have generated friction with their trading partners with both trading partners Brazil and China threatening to retaliate or actually retaliating.

Some WTO agreements permit protectionist measures, for example increasing tariffs (there are limits that bind these tariff increases). The WTO called for restraint in measures such as restrictions on new exports, measures inconsistent with WTO to increase exports and barriers to trade or investment in services and goods (TPRB Report, 2003). The call to practice restraint stems from the idea that in the face of the current economic crisis, the countries that account for up to 80 or 90 of the worlds economy should be careful not to adopt measures that would make the world economy worse. The WTO recognizes that these countries have the legal right to put protectionist measures in place, hence, the WTO leaves the individual countries to determine which actions to take (TPRB Report, 2003).

Protectionism has been accused of being the cause of wars examples cited by proponents of this argument include the taxes and tariffs imposed by the British before the American Revolution, the protective policies that preceded the two world wars and the warfare so common in the eighteenth and seventeenth centuries among countries that were majorly protectionist (Bhagwati and Irwin, 1996). Fears that protectionism could grow in the midst of the financial crisis are not unfounded. Some countries have taken direct measures as well as bailout packages that specific to certain sectors. This has the disadvantage of distorting allocation of resources especially with respect to other sectors and effectively other competitors in different countries. This has the effect of creating trade barriers. There is also the possibility of running into high debt in the economic recovery process. It is therefore necessary for governments to tread carefully as they take measures to protect their domestic economies as they also take action to sustain the growth of global trade.