Threat of Protectionism and Its Possible Effects on World GDP and Income Distribution

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Economists, who believe that increased trade is the only optimum solution to this pandemonium, feel that countries might slip further if protectionist measures are actually implemented. BBC News Reporter James Melik in his report “The dangers of trade protectionism” discusses the consensus among global leaders about the evils of protectionism. The ‘Buy America’ clause propagated by US President Barrack Obama is sending wrong messages all over. Economists feel that this will create an atmosphere where countries will compete among themselves to introduce trade protection measures. It will further aggravate the grim conditions the world is already facing. Some quarters, however, believe that it is more of a political necessity than an economic one that is fuelling the drive for ‘Buy America’.

British Prime Minister Gordon Brown has also initiated a slogan of British Jobs for British workers. In a way, these effects might not sound that alarming if considered in isolation. The images become devastating only when the domino effect of countries going into protectionist mode is considered. All this is capable of ultimately leading economies into autarky that seriously jeopardizes their growth prospects.

International trade can actually help economies get out of this bleak phase. A memorable example of this can be the way in which the East Asian Tigers restored their economies after the East Asian Crisis in 1997 through increased exports.

This realization has perhaps lead to the agreement among finance ministers of G7 nations towards a systematic approach and joint efforts in working together to restore growth in employment and growth. (G7 Pledges to Avoid Protectionism, February 2009)

The basic framework of international trade is derived from the factor price equalization theorem designed by Eli Heckscher and Bertil Ohlin. According to this theory, a country will export those commodities which can be produced by the relatively abundant factor of production.