Import Substitution and Trade Protectionism

There is no doubt that increasing in international trade is supporting the economic growth across the world, raising incomes and creating jobs. However, international trade can also some create economic obstacles, such as the international context and the market policy and regulations of each country, and consequently it can be said that the effects would have positive and negative sides, and it is useful to mention all of them and to take them into consideration.

One of the major advantages of trading is that it allows producers to concentrate or specialize their work in the type of goods they produce best. When people decide to specialized in a specific profession an become doctors, farmers, teachers, or any other profession within an economy, they will be able to produce goods and offers different services that can be trade for any goods or services they may need. In this same way countries can become specialized in the production of specify products and/or services and trade those with other countries. However, trading and importing products and services from other countries also has its disadvantages. As a result of the different products imported governments impose certain restrictions and limitations to protect the domestic production and market of every country involve in any kind of trading transactions. Governments have imposed taxes on trading transactions adding them to the cost of importation, and have the purpose of restricting and/or limiting the imports of goods and services into a country. These government

1-21- pros: promotes global economic growth, reduces trading barriers, drives prices down, and provides countries to the chance to economically develop.

A widespread view developed among economists and policymakers in the early post World War II period Import substitution policies were popular amongst developing economies was that the best way for these countries to develop more rapidly was to stimulate industrialisation by adopting import-substitution policies. At the time, there seemed to be a number of good reasons for such an approach. The policy makers of the newly independent nations were keenly aware not only that most of the countries from whom they obtained independence had much higher per capita income levels and were much more industrialised but that their former rulers had imposed economic policies in the past which discouraged industrialisation within the new nations and industrialisation seemed to offer the possibility of achieving faster growth, higher per capita income levels and the economic and military power needed for national security. An economically sensible way of achieving industrialisation seemed to be to restrict imports of manufactured goods for which there already was a domestic demand in order both to shift this demand toward domestic producers and permit the use of the country’s primary- product export earnings to import the capital goods needed for industrialisation. There also appeared to be a number of examples where high levels of import protection contributed positively to industrialisation. Although Great Britain had adopted a policy of free trade during its period of rapid growth in the

Tools protectionist trade policy can include high tariffs on goods imported from abroad or import quotas. State support for local producers so that the money remains in the country and increasing production. However, this argument is not correct, because according to his reasoning should refrain from imports completely (to maximize national income), and it is imports, although not part of the GDP, contributes to its augmentation by providing intermediate and capital goods. Protection of new industries, temporary favouritism helps industries that are not yet ready to face international competition. Opponents of this argument suggests that there is no rational confirming that such companies increase their competitiveness in the contrary to develop in favourable conditions than other industries, accustomed to state support. Another problem is the choice branches, which are to be

* Protection of national markets against foreign competition by imposing import taxes and state control of foreign currency dealings.

One of the most important sources of today’s international trade protectionist policies is that of job protection. To maintain existing jobs that could easily be threatened by foreign competition, restrictions must be put in place, disallowing free trade. Restricting imports

With free international trade a lot of jobs will be created in the country, especially in industries of manufacturing and services which can absorb the unemployment that created by restructuring as firms down their workforce.

The effects of globalization have touched all the aspects of life and business today. One aspect is the trading policies between countries. Since the late nineteenth century, the collision started between domestic and foreign industries, which ask governments for measures that could protect local industries, without discouraging the country’s trade relations. The term ‘Protectionism’ was thus introduced in the language of global trade and economy (Rowley, 2002). Protectionism is an economic policy applied in the trading system, to restrict the quantity of imported items, and to flourish country’s exports. The objective of this is policy is to

Occasionally both tariffs (tax that adds to the cost of imported goods) and import quotas (a restriction placed on the quantity of particular good that a country can import) are used to control the quantity of foreign products that can enter a country’s domestic markets. Several arguments have been raised regarding reasons for protecting domestic markets against foreign traders. Nonetheless, protectionism is characterized by several welfare consequences. The arguments for protectionism can be categorized into economic and non-economic. The economic arguments mostly focus on national welfare. On the other hand, arguments for non-economic protectionism are based on national interests. This paper evaluates the potential justifications for protectionism measures.

When trading in an international market, a company must understand the ways, countries can interfere with trade. These trade barriers, according to Kishore Kulkarni’s book on International Economics, cause trade to “diverge from the comparative advantage pattern” (pg.266). David Ricardo’s comparative advantage “is an economic law that demonstrates the ways in which protectionism is unnecessary in free trade” (pg.145). This section will provide an in-depth look at the trade restriction known as a tariff.

move beyond poverty and civil war to a globally competitive export based industry. The nature

For the purpose of this paper, Import-Substitution Industrialization (ISI) is a trade and economic policy that seeks to replace foreign imports with domestic production on the industrial and agricultural basis (Nelson 99). ISI is typically enacted by developing countries that seek to increase independence from the global market and to develop its internal domestic markets. The methods to achieve ISI in many countries in Latin America were very similar: impose high tariffs, prohibit certain imports, and have direct public investment in industries that can thrive in given conditions (Cardoso 5). In Brazil, as well in other Latin American countries, ISI was first triggered by World War I. During the War, reliable foreign exports on necessities were not always guaranteed as the United States and most European

Import Substitution Industrialization (ISI) as an economic development strategy was pioneered and grew out of the belief, “markets alone could not be relied upon to provide the physical capital and set up industries necessary for development,” (Demir, 2017). According to Demir (2017), “the pioneers of development economics viewed underdevelopment as a lack of capital which determined a very low labor productivity. Thus in its early phase (the 1950s and early 1960s), ideas surrounding development focused on capital accumulation and industrialization as the major vehicles to promote development.” It was believed by policymakers that richer countries used the accumulation of capital and industrialization as the primary catalyst to spur development; these policymakers also believed capital accumulation and industrialization would be the best method for developing economies to achieve development themselves. Thus ISI was born.

More work could be created as the business for the countries' products increases through trade. Overall trade associates generate more professional occupations. This will help countries chop down their unemployment.