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The Economic Effects of Trade Protectionism

in Business

Donald Trump has been making numerous headlines in recent months, largely due to the extensive tariffs he has placed on many Chinese goods as well as goods from other countries around the world (including strong allies). His protectionist stance when it comes to trade has not been well received by most countries, who have accused him of starting a ‘trade war.’ As such, here are some of the economic effects of trade protectionism.

Trade Relationships

Since trade protectionism often involves taking measures like imposing/raising tariffs on other countries’ goods, it often serves to damage other economies around the world. This means that both political and economic ties between countries can become significantly damaged, potentially to the point where countries stop trading with each other.

This, in turn, can be harmful to the global economy and put jobs at risk in all countries involved. While trade protectionism may reduce reliance on other countries in the short term, it can also hamper future opportunities for countries to establish mutually beneficial trade deals.

Investment

One of the aims of trade protectionism is to boost targeted home industries by shielding them from outside competition and driving up demand for their product at home. Higher tariffs on foreign goods make them more expensive, meaning that more companies buy their materials/goods domestically.

Investors, from those who trade CFDs to those who invest directly in companies, are likely to see the effects of trade protectionism first hand. Those speculating on shares, for instance, are likely to see the value of certain companies rise significantly (at least in the short term).

Consumer Confidence

Ultimately, though, trade protectionism often leads to a rise in production costs, and thus also in many end products. This means that consumers have to deal with price rises, meaning that they cannot afford to spend as much. While one industry may benefit from protectionism, many others may suffer, and this could eventually damage the economy overall.

Many economists believe that allowing free trade between different countries benefits all involved, including the consumer, and so is a much more effective option than trade protectionism.

While there may be some short-term benefits to trade protectionism, it is clear that as a long-term strategy it is incredibly risky, and likely to lead to complications and potentially even hostility between countries. As such, it seems that in most cases trade protectionism is an ineffective economic policy, especially in the interconnected modern world.

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