Globalization: FreeTrade Vs Protectionism

The diagram below represents a strong US or Western economy (also Japan), on the left, exporting and importing with a weaker third-world economy. The strong economy circulates of lot of money internally, as indicated by the broad closed circle, and people participating in this economy are relatively wealthy. The weak economy cannot support itself or get stronger, unless it can export to a stronger economy.

As the diagram shows, both economies put up barriers for some imported goods, and provide some trade boosters or enhancers for its own exports.

Most people agree that the end goal in this situation is two equal economies with low trade barriers. The assumption is that in this state, each country will be able to find a niche in which it is competitive. But now, the best route to development for developing countries is export to the developed countries. Both sides will have some import barriers (tariffs, quotas, minimum wage, environmental standards, safety standards, etc.) and some export enhancers (subsidies).

If export to US were barrier-free, we would have severe job losses in US, our ability to import would disappear, and everyone would suffer.

If export to US were impossible, developing nations would not develop. This would be politically unstable the contrast would be too stark. Also, experience has shown that restricting imports drives exporting countries to become more than competitive on quality and cost, eventually breaking through the restrictions.

So there must be a balance between extreme free trade and extreme protectionism. The balance must be acceptable to both sides. The state of the balance will be a constant issue until the end goal is substantially achieved. (This issue is discussed in both Friedman's and Dyson's books, of course, but more explicitly in Friedman's book, when writes that globalization could cause its own end.)


None of this is to say that the US is the bad boy in this area, everyone does it, and everyone acts out of self interest at the same time they talk about free trade. There is an international impetus towards freer trade, or otherwise everybody would just protect their own industries.

The point here is that the balance between free trade and protectionism will be with us for a long time. Friedman mentions other issues, such as the impact of globalization on the environment.