Protectionism

[David87M3]

Hi,
can some kind person please explain Protectionism in simple terms please.
Is it a good or bad thing?
Seeing as the North east has just lost another big contract (oil rig work) to Singapore I fail to see why we shouldnt be trying to keep our own industry alive.
My understanding of it is instead of trading with other countries we do everything were possible in house.

Thanks

Edited by David87M3 on Wednesday 25th March 14:08

[ianash]

Firstly, we are a party to various free trade agreements, freely entered into. Secondly, If we start to prefer our own business to foreign competitors they will retaliate. Britain is not self-sufficient and we need free trade to pay our bills, or not as is currently the case. I'm sure the forum economists, will give a more comprehensive list of reasons why protectionism is a bad thing.

Edited by ianash on Wednesday 25th March 14:17

Edited by ianash on Wednesday 25th March 14:18

[Fittster]

I'm a customer for widgets.

There a 2 factories one in the UK, which makes poor quality, expensive widgets and another in China that make widgets of better quality for less money. My best interests would be served by buying the widgets from China. If all widget customers do this the UK widget company must either up it's quality and reduce its prices or go bust.

Now to protect the UK widget firm the government puts a tax on the import of widgets which makes the products from China far more expensive. The UK company is now back in the game, and has no incentive to invest in quality control or efficiency to reduce its prices.

As the buyer of widgets you are now stuffed, either put up with the UK product or pay much more for the ones from China.

The factory in China may now bust and the workers in china are now unemployed. Is it really ethical/moral to put these people on the streets? One minute it's "help the poor of the world", then screw the poor as soon as they start to compete in the modern world.

Why should a widget maker in the UK have a higher income/standard of living than a widget maker from China? The are both simple widget makers trying to look after their families.

[rpguk]

Protectionism is a short term populist policy which patches only the symptoms of a problem rather then underlying problems.

Fittster's post describes the problems of it well. It ultimately leads to an inefficient economy.

Edited by rpguk on Wednesday 25th March 14:25

[RichardD]

Fittster said:

...
Why should a widget maker in the UK have a higher income/standard of living than a widget maker from China? The are both simple widget makers trying to look after their families.

But doesn't our standard of living depend on the standard of others being worse?
There is nothing wrong with importing widgets, but if we cannot produce anything the Chinese place value on - then our currency has no value to them.

IMO if a country wishes to have truly free trade then it needs to realise its a competition and they better be strong enough to compete.....

[V8mate]

Fittster said:

I'm a customer for widgets.

There a 2 factories one in the UK, which makes poor quality, expensive widgets and another in China that make widgets of better quality for less money. My best interests would be served by buying the widgets from China. If all widget customers do this the UK widget company must either up it's quality and reduce its prices or go bust.

Now to protect the UK widget firm the government puts a tax on the import of widgets which makes the products from China far more expensive. The UK company is now back in the game, and has no incentive to invest in quality control or efficiency to reduce its prices.

As the buyer of widgets you are now stuffed, either put up with the UK product or pay much more for the ones from China.

The factory in China may now bust and the workers in china are now unemployed. Is it really ethical/moral to put these people on the streets? One minute it's "help the poor of the world", then screw the poor as soon as they start to compete in the modern world.

Why should a widget maker in the UK have a higher income/standard of living than a widget maker from China? The are both simple widget makers trying to look after their families.

The bit you missed is that, because the Chinese widget factory closed, the Chinese government then imposed an import tax on ALL goods from the UK, so rendering our own exports uncompetitive, thereby making more UK workers redundant.

[RichardD]

V8mate said:

...
The bit you missed is that, because the Chinese widget factory closed, the Chinese government then imposed an import tax on ALL goods from the UK, so rendering our own exports uncompetitive, thereby making more UK workers redundant.

If such a scenario did occur then wouldn't it still be better than the UK factory closing and the redundant workers getting non jobs in the public sector or being unemployed? Unless of course you believe that we have infinite money to spend and no matter how much we import, there will still be plenty to keep everyone in the country in productive employment?

However if the UK exported more to China than it imported then any import tax on Chinese widgets would be very foolish to spoil a beneficial relationship.

[Fittster]

RichardD said:

Fittster said:

...
Why should a widget maker in the UK have a higher income/standard of living than a widget maker from China? The are both simple widget makers trying to look after their families.

But doesn't our standard of living depend on the standard of others being worse?
There is nothing wrong with importing widgets, but if we cannot produce anything the Chinese place value on - then our currency has no value to them.

IMO if a country wishes to have truly free trade then it needs to realise its a competition and they better be strong enough to compete.....

Surely are standard of living should be based on our productivity/efficient than quirks of history/geography. I see no reason why the population of the UK has an automatic right to have a higher standard of living than any other population in the world.

[V8mate]

RichardD said:

V8mate said:

...
The bit you missed is that, because the Chinese widget factory closed, the Chinese government then imposed an import tax on ALL goods from the UK, so rendering our own exports uncompetitive, thereby making more UK workers redundant.

If such a scenario did occur then wouldn't it still be better than the UK factory closing and the redundant workers getting non jobs in the public sector or being unemployed? Unless of course you believe that we have infinite money to spend and no matter how much we import, there will still be plenty to keep everyone in the country in productive employment?

However if the UK exported more to China than it imported then any import tax on Chinese widgets would be very foolish to spoil a beneficial relationship.

The insidious thing about protectionism is that it's contagious and in the end the global import/export scene comes to a grinding halt and countries find themselves with surpluses of some goods and shortages of others. Everyone loses.

Edited by V8mate on Wednesday 25th March 14:50

[RichardD]

Fittster said:

...
Surely are standard of living should be based on our productivity/efficient than quirks of history/geography. I see no reason why the population of the UK has an automatic right to have a higher standard of living than any other population in the world.

Well its getting like that isn't it!

No-one has any right, we just do what we can to perpetuate our existances. Like this
http://en.wikipedia.org/wiki/Will_to_power

[David87M3]

Fittster said:

I'm a customer for widgets.

The factory in China may now bust and the workers in china are now unemployed. Is it really ethical/moral to put these people on the streets? One minute it's "help the poor of the world", then screw the poor as soon as they start to compete in the modern world.

Why should a widget maker in the UK have a higher income/standard of living than a widget maker from China? The are both simple widget makers trying to look after their families.

So the Uk may tax imports fine but the tax does not go to keep the uk widget factory alive does it? Im sorry but Id rather see uk workers in jobs. This may be a short sighted view but in my opinion sometimes we have to look after our own people.
Is it really ethical/moral to put or own people out of work? I know were your comming from on standard of work in the UK....

Im not looking for an argument by the way just trying to understand..

Edited by David87M3 on Wednesday 25th March 14:50

Edited by David87M3 on Wednesday 25th March 14:51

[ianash]

The value of a free floating currency is one of the stabilizing factors in compensating for a lack of competitiveness. Our widgets are too expensive, therefore we can't sell them. As we sell less and our trading partners vote on the value of our currency, down it goes. Eventually it will reach a level where our widgets become competitive again. Our trading partners now feel our economy is improving and up goes the currency.

This all works perfectly well, until widget companies start to cheat. China has been manipulating its currency for years in order to maintain their competitive advantage. They have bought shed loads of dollars in order to depress the value of the Yuan. This in my view is Protectionism. The outcome of this for the Chinese, is that they own vast quantities of Dollars which are devaluing before their eyes. Serves them right
.

Edited by ianash on Wednesday 25th March 14:54

[Bing o]

RichardD said:

But doesn't our standard of living depend on the standard of others being worse?

Easy to say living in the west. If you were living on a dollar a day would you feel the same??

[RichardD]

V8mate said:

..The insidious thing about protectionism is that it's contagious and in the end the global import/export scene comes to a grinding halt and countries find themselves with surpluses of some goods and shortages of others. Everyone loses.

I do think that when implemented by governments, it is bad as as you've stated it gets contagious and everyone can suffer, but when (like the French and Germans have been doing with cars), citizens support each other - then that's the way to do it.

[V8mate]

RichardD said:

V8mate said:

..The insidious thing about protectionism is that it's contagious and in the end the global import/export scene comes to a grinding halt and countries find themselves with surpluses of some goods and shortages of others. Everyone loses.

I do think that when implemented by governments, it is bad as as you've stated it gets contagious and everyone can suffer, but when (like the French and Germans have been doing with cars), citizens support each other - then that's the way to do it.

I think the Romanians might disagree.

[Orb the Impaler]

Bing o said:

RichardD said:

But doesn't our standard of living depend on the standard of others being worse?

Easy to say living in the west. If you were living on a dollar a day would you feel the same??

Does this make having tens of thousands of IT workers here (on "essential" work visas because of the "IT Skills Shortage") from the Indian sub-continent while tens of thousands of indiginous IT staff live on benefits ok then?

[HundredthIdiot]

Fittster's explanation is all very well, but "efficiency" is a rather narrow view of things, even from a purely economic perspective.

If the Chinese widget maker achieves the required product quality at the low price by dumping toxic waste into the local water supply, it's not really in anyone's long term interests, economic or otherwise.

"Inefficient" may just mean "having to operate under UK law". If you're bound by minimum wage and working hours directives, no amount of clever management is going to make you competitive againt developing countries.

The standard response to these sort of wishy-washy concerns to date seems to have been "make them richer and they'll act more responsibly", but I don't know that there's any evidence of this.

Morlocks and Eloi.

[RichardD]

Bing o said:

RichardD said:

But doesn't our standard of living depend on the standard of others being worse?

Easy to say living in the west. If you were living on a dollar a day would you feel the same??

My post was based on logic so that's not relevant.

However, I have read the book "No Logo" and the latter "Fences and Windows" and of course do sometimes wonder if the monitor I'm now sat behind was made by a 15yr old who was giving birth at gunpoint in a sweltering factory whilst underneath the company work bench (*)

• Which is also something according to the research in No Logo - are conditions which certainly used to exist (for trainers though, not monitors).

Edited by RichardD on Wednesday 25th March 15:11

[JRM]

RichardD said:

Bing o said:

RichardD said:

But doesn't our standard of living depend on the standard of others being worse?

Easy to say living in the west. If you were living on a dollar a day would you feel the same??

My post was based on logic so that's not relevant.

However, I have read the book "No Logo" and the latter "Fences and Windows" and of course do sometimes wonder if the monitor I'm now sat behind was made by a 13yr old who was giving birth at gunpoint in a sweltering underneath the company work bench (*)

• Which is also something according to the research in No Logo - are conditions which certainly used to exist (for trainers though, not monitors).

Actually my monitor is a little shabby around the edges, so it might of been. Where can I complain??

[ianash]

V8mate said:

RichardD said:

V8mate said:

...
The bit you missed is that, because the Chinese widget factory closed, the Chinese government then imposed an import tax on ALL goods from the UK, so rendering our own exports uncompetitive, thereby making more UK workers redundant.

If such a scenario did occur then wouldn't it still be better than the UK factory closing and the redundant workers getting non jobs in the public sector or being unemployed? Unless of course you believe that we have infinite money to spend and no matter how much we import, there will still be plenty to keep everyone in the country in productive employment?

However if the UK exported more to China than it imported then any import tax on Chinese widgets would be very foolish to spoil a beneficial relationship.

The insidious thing about protectionism is that it's contagious and in the end the global import/export scene comes to a grinding halt and countries find themselves with surpluses of some goods and shortages of others. Everyone loses.

Edited by V8mate on Wednesday 25th March 14:50

If you look back to the old Soviet Union, this was protectionism on a grand scale. They tried to "ring fence" the eastern bloc and be self sufficient. As a "command economy" they could make sure their economy was operating at maximum efficiency. So factories did not have to compete, they had guaranteed markets. The quality of most of their production was as a consequence, crap. The exception was the military/industrial complex which had to compete against the west (in the event of war). So the largest experiment of protectionism, should be a warning shot across our bow. It doesn't work, stifles innovation and makes us all poorer.