3.1.4 Trade policy and trade negotiations


    Protectionism – the act of guarding a country’s industries from foreign competition by                               imposing restrictions on free trade


    This is done to avoid foreign imports replacing domestic substitutes which leads to business closures and loss of domestic jobs. It is also used to improve trade deficits and protect small businesses (infant-industry) they will not be able to compete with foreign businesses.

    The main three aims of protectionism are as following:

    1. Protect domestic jobs
    2. Help new industries grow
    3. Reduce the trade deficit


    There are several types of protectionism:

    • Tariffs
    • Quotas
    • Subsidies
    • Excessive administrative burdens

    Currency devaluation (less common)



    ROLE OF G20:

    The G20 is comprised of 20 major economies that was formed with the intention of promoting international financial stability and discussing important policy issues. It was founded in 1999 in response to the global financial crisis of 1997-99. However, they do not include the majority of countries and may exclude developing economies and there are different economic interests within the G20, so it is difficult to coordinate policies.



    The World Trade Organisation originally began as the General agreement on tariffs and trade (GATT). It promotes world trade through reducing trade barriers and regulating existing agreements. They also listen to trade complaints, formulates rules and helps with trade negotiations. Some countries might argue that the WTO is too powerful, or that it ignores the problems of developing countries. This could be since developed countries do not trade completely freely with developing countries, which limits their ability to grow.


    The World Bank was originally set up to fund the reconstruction of war-torn economies and helps poorer ones develop. They provide grants and loans for infrastructure developments. The World Bank can loan funds to member countries, and its aim is to promote economic and social progress by raising productivity and reducing poverty.


    The International Monetary Fund promotes monetary co-operation between economies. It also aims to promote exchange rate stability and attempts to avoid competitive currency depreciations. They also provide money to governments with trade deficits.



    Agreements between two individual economies or groups which agree to reduce trade barriers between each other. They agree to favour each other’s goods and services. it could involve a guaranteed purchase quantity or removal of protectionist barriers. One advantage is that they are quite simple as they are only between two parties. An example of such an agreement would be the one between ASEAN and China (ACFTA).



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