The Global Financial Crisis And Protectionism

1454 Words6 Pages
Title: The Global Financial Crisis and Protectionism
Question: During 2008~2009 many developed nations gave subsidies to their automobile producers. How might this have distorted international trade? Was this a reasonable thing to do given the circumstances?
Introduction
There was an empirical research study on the effect of protectionism on the Gross Domestic Product (GDP) in the United States (US). According to National Bureau Of Economic Research, “a generalized 10 percent hike against emerging Asia improves the US current account balance as a share of GDP by a mere 0.1 percentage point. The effect disappears after about two years, and in the absence of further adjustment in net saving, it may even revert sign.” So it implies that the protectionism has many negative aspects on one’s economy contrary to the nation’s belief. I could find reasons why protectionism affects international trade in negative ways from several research papers. In this paper, I tried to verify those reasons by using certain economical models.
1. Protection measures benefit domestic producers and affiliated other parties, but society pays the price.
Assumption 1) Domestic and foreign automobile products are a perfect substitution. 2) Government offers the domestic producers subsidies by “s” per every produce.
In order to protect less competitive domestic automobile producers, the government offers subsidies to them. It makes the domestic automobile producers feel that cost is reduced and
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