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GLOBAL FINANCE
their domestic alternative. Two countries that sell to each other in this
way will benefit people in both nations, enabling them to consume
more goods while spending less.
The benefit of free trade is one of the few matters that most
economists agree upon. In practice, however, companies, industries,
and whole sections of society, together with the politicians who
represent them, often demand that their special interests should be
protected from foreign competition. A major drawback of protectionist
measures is the danger of retaliation for instance, in 1980 when the
UK imposed controls on imports of clothing from Indonesia (worth
about £10mn), Indonesia canceled a defense order worth £40mn and
reconsidered other UK import deals worth £350mn.
Another objection is that economic efficiency, meaning producing
things that people want at the lowest possible cost, is often ignored in
protectionist arguments.
Nevertheless, there are sometimes grounds for selective protectionist
measures.
» Protecting jobs foreign competition may cost local people their
jobs. Although these workers may be ultimately employed in other
industries that are expanding, there is a cost. People may have to
move to another part of the country to get work, and spend time and
money acquiring new skills. Those who are in the weakest position
and find it difficult to change may suffer hardship for many years.
» Unfair trade practices from foreign competitors while anti-trust
laws in the US prevent companies from monopolizing an industry
and engaging in ``predatory'' pricing, other countries, notably Japan,
have no such restrictions. In such cases, free trade clearly does
not mean the same thing to all trading partners. Many American
economists regard this as a legitimate argument for protection,
especially in the face of a powerful industry in a foreign country
behaving ``strategically'' in international trade. ``Dumping'' goods in
other countries at a price that is lower than the real production cost
is often seen as unfair, for instance by the US and the European
Community in relation to certain Japanese exports.
» Cheap foreign labor is unfair developed nations tend to have a
higher cost of living and pay higher wages than developing countries.
Manufacturers in high wage countries, for instance, may claim that
