What is Better for SMEs: Free Trade or Protectionism?
Under free trade, goods can cross borders without any restrictions, allowing trade to be unrestricted and uninterrupted by high tariffs. On the other hand, protectionism allows tariffs, high taxes, and other restrictive regulations on products. When this happens, the flow of goods in a country begins to slow down. So which one is more effective for SMEs?
What do Experts Say?
According to certain economists, some trade restrictions are necessary. However, it is critical to be careful since they can result in poverty. For instance, restrictions on agricultural imports can be ideal for British farmers, but they also drive food prices higher. Let’s discuss free trade and protectionism in depth.
Key Arguments Regarding Free Trade
In general, free trade boosts the size of the economy. It facilitates the production of goods and services where infrastructure, natural resources, and skills are present. It also enhances productivity, which means employees will eventually earn more. Thus, experts believe that growing international trade has promoted economic development in recent years.
Free trade is also ideal for consumers as it eradicates tariffs and boosts competition. Increased competition is highly likely to promote quality. Without free trade, various goods would not be available in some countries. Lessening non-tariff obstacles can also eliminate red tape, reducing trading costs. When companies that trade in different countries have to operate with only one fixed regulation, compliance costs will be cheaper, making services and goods less costly in the end. Thus, if you run a startup or an SME, free trade would probably work best for your business.
What About Protectionism?
Protectionism can trigger disastrous trade wars, which can raise uncertainty and costs as different sides try to safeguard their economies. Often, protectionist policies benefit big enterprises because they have enough resources to respond effectively.
Basic Arguments on Protectionism
Free trade generally enhances the economy. However, this does not mean it’s always the best option for everyone. As more countries go through industrial development, there has been a decline in conventional household industries. For example, since the 1950s, the shipbuilding industry in the UK has declined as a result of international competition and steel production is currently facing increased competition in the country. Protectionism can either slow down change or help protect jobs in these industries.
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