MG1054: Critical Essay on International Business Environment (Brunel)

This essay critically examines the international business environment, focusing on the impact of government protectionism versus free trade on firms' competitive advantages. It begins by defining protectionism and its implications, contrasting it with the benefits of freer trade. The discussion section delves into the disadvantages of protectionism, including economic inefficiencies, reduced consumer choice, and negative impacts on income distribution and production. The essay highlights the potential for trade wars, anti-globalization sentiments, and increased costs for exporters. Furthermore, it explores how protectionism can limit customer access to foreign goods and services. The essay references various academic sources to support its arguments and concludes by emphasizing the shift towards market opening and the importance of understanding the interplay between protectionism and free trade in the global economy.

Running head: INTERNATIONAL BUSINESS ENVIRONMENT
International Business Environment
Name of the Student:
Name of the University:
Author note:

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Table of Contents
Introduction................................................................................................................................1
Discussion..................................................................................................................................1
Conclusion..................................................................................................................................5
References:.................................................................................................................................6

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Introduction
Protectionism is implemented by the nations whenever they see that their domestic
firms are being influenced by the unjust competition in negative manner (Georgiadis and
Gräb 2016). It helps the government of different countries in promoting their local producers
and increase their local production of services and goods by means of imposing tariffs and
restricting down the foreign services and goods in the marketplace. In contemporary era,
majority of the firms from all the national origins are highly dependent on the globally
dispersed production systems for gaining competitive advantage. These systems are the result
of freer trade. This report shall elaborate on discussing about the disadvantages of
government protectionism in critical manner, as it relates to the competitive advantage.
Discussion
Protectionism can be defined as the activities and policies of government that restrain
and restrict the international trade that is often done with an aim of defending the local jobs
or businesses. According to Low, the policies on protectionism also allow the government in
protecting the development of the domestic industries from the developed and established
foreign competitors Low (2016). Although it does have some obvious advantages, there are
many who have presented their viewpoints in against the government protectionism. Cole and
Grossman in this context have claimed that trade protectionism is inefficient from the
economic aspect Cole and Grossman (2018). It is highly efficient in terms of competitive
advantage for a nation for focusing its production on the goods for which it has a benefit in
the production and import those goods that it does not. With the same, the customers present
in the domestic market might have to pay a huge premium for the better produced import or

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they are denied the potential of acquiring them at all. This is likely to decrease the living
standard of the country’s citizens.
Loss of Economic Welfare- Sun and Nie in this issue have opined that tariffs create
deadweight loss of the producer and consumer surplus (Sun and 2015). The economic welfare
is reduced by means of limited customer choice and higher prices. Also, welfare effects of the
quota too are similar to those of the tariff- the prices increase as of the fact that artificial
scarcity of a product is created.
Impact on the income distribution- According to Cadot, Munadi and Yan Ing (2015),
higher prices from the tariffs often hit the ones on the lower incomes as the tariffs like
clothing, foodstuffs and tobacco fall on some of the products that the lower income based
families spend a larger share of their income.
Negative multiplier effects- It is to mention that when one company imposes trade
restrictions on the other, the restaurant often decrease in the trade and this is likely to have a
negative multiplier impact on other different nations as the exports is about the injection of
demand into worldwide circular flow of income.
Inefficiencies in production- Aghion et al. (2015) in this context have opined that the
companies which are protected from the rivalry have very little incentive to decrease their
costs of production. This further can result in X-inefficient and higher costs on an average. It
limits down the customer access to the foreign goods as well as the non-domestic firms that
offer them with unique services and products are also subject to the limits Laxminarayan
(2014).
Extra costs for the exporters- The goods and services that are produced on a global
scale, the high tariffs and the other different barriers on the imports act as a tax on the exports

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and thereby, damaging the economies as well as jobs, instead of protecting them. With the
same, customers too in this process are required to pay more with the protectionism (Evenett,
and Fritz 2015). Without a proper system of reasonable pricing, the domestic firms have
become free to increase their product prices without improving their quality. When the firm
has no competition in place then the customers are likely to left out without having any other
option apart from using or buying the same product with high price and low quality.
Trade Wars- When one country imposes import controls on other, it is likely to result
in retaliatory action by the another and this further lead to a significant reduction in the total
capacity of the world trade. The retaliatory actions increases the total cost of importing the
new technologies influencing the LRAS Gomez (2016). People need to mention about the
game theory while discussing about the risks of retaliation with the other nations that are
embroiled in trade disputes. Ciuriak and Xiao too in this context have claimed that
protectionism can result in retaliation reaction from the other countries, ruining the important
relationships in between different nations Ciuriak and Xiao (2017). The best example to be
included in this context is that of the relationship of China and USA. When USA put
boundaries on the Chinese tires, the China retaliated by putting up different barriers against
the diverse goods and services of United States like that of chicken. This kind of aggression
among the nations reduces the specialisation among two different countries and ultimately
results in damaging the economy.
Anti-globalisation- Researchers like Yusuf and Warr (2018) have also argued that
trade protectionism is a step towards the anti-globalisation. It spells trouble for the global
growth of economy. Between the year 1985 and 2014, the expansion of international or
global trade had outpaced the economic growth. The emerging countries like China and the
developed nations like Germany have largely benefitted from the bigger global markets
(Buckley, Clegg and Cross 2015). Rise in the important have caused a significant reshuffling

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in the market share, which can be considered as a development that has played a significant
role in the sharp drop in the rate of inflation over the passage of time. The competitive pricing
from the exporting nations was considered to be an important factor but the direct investment
by the companies in the developed nations also made a big contribution (Stanisic 2015). The
firms notably increased their presence in the nations where the demands for services and
goods was growing significantly but where the domestic purchasing power was low to afford
the imported goods from the developed nations. This means that to capture this demand, one
need to setting up the production facilities in the developing countries, driving the growth,
fuelling the creation of job and raising the revenues. However, the momentum in trade
slackened in the past two years. There is also an increase in the international trade volume by
2%. It is basically for the slowdown in the Chinese economy that hit its suppliers but it was
also because of some stabilisation in the global market shares. After China’s accession to
WTO, market share gains have started to fade and that put a break on the expansion of trade
(Jean 2017). It has also been reduced by the local production by the foreign firms that have
replaced some of their exports.
Apart from these, it is also to mention that the domestic customers and the foreign
businesses face the biggest disadvantage of government protectionism. They undergo
imbalanced limits when their local opponents are offered the financial advantages and the
customer ends up paying the higher prices for some restricted kind of products, which are not
always worth their total costs. With the same, there are some governments that provide loans
and subsidies to the businesses, which are not able of competing against their other global or
foreign competitors. Such actions restrain or limit down the free market by means of giving
certain advantages to the local firms while creating some consequences upon the foreign
firms. With the same, ever since 1947, the custom duties in the developed nations have fallen

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to 5% from 40% (Baldwin 2016). When looking beyond the customs levies, the nations have
several ways of protecting themselves against the imports.
Conclusion
Hence, from the above analysis it is to conclude that the government protectionism
and the free trade policies have replaced for corresponding certain economic situation.
Notwithstanding this fact, there has been a significant shift for opening up the markets,
decreasing the international cooperation and trade barriers among the nations in last decades.
However, the influence of the current economic slowdown have pushed several countries to
stray away from the protectionism agreed for supporting the domestic employment and
economies.

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References:
Aghion, P., Cai, J., Dewatripont, M., Du, L., Harrison, A. and Legros, P., 2015. Industrial
policy and competition. American Economic Journal: Macroeconomics, 7(4), pp.1-32.
Baldwin, R., 2016. The World Trade Organization and the future of multilateralism. Journal
of Economic Perspectives, 30(1), pp.95-116.
Buckley, P.J., Clegg, L.J. and Cross, A.R., 2015. The determinants of Chinese outward
foreign direct investment. In International Business Strategy (pp. 588-614). Routledge.
Ciuriak, D. and Xiao, J., 2017. Protectionism and Retaliation. Available at SSRN 2918183.
Cole, D.H. and Grossman, P.Z., 2018. When is command-and-control efficient? Institutions,
technology, and the comparative efficiency of alternative regulatory regimes for
environmental protection. In The Theory and Practice of Command and Control in
Environmental Policy (pp. 115-166). Routledge.
Evenett, S.J. and Fritz, J., 2015. The Tide Turns? Trade Protectionism, and Slowing Global
Growth. The 18th GTA Report.
Georgiadis, G. and Gräb, J., 2016. Growth, real exchange rates and trade protectionism since
the financial crisis. Review of International Economics, 24(5), pp.1050-1080.

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Gomez, R., 2016. Employee Voice and Representation in the New World of Work: Issues
and Options for Ontario. Toronto: Centre for Industrial Relations and Human Resources,
University of Toronto, March.
Jean, S., 2017. The Slowing in World Trade: a structural break, the cause of
uncertainty. Macroeconomics, 5(3), pp.118-51.
Laxminarayan, R., 2014. Antibiotic effectiveness: balancing conservation against
innovation. science, 345(6202), pp.1299-1301.
Low, P., 2016. International trade and the environment. UNISIA, (30), pp.95-99.
Stanisic, N., 2015. Do foreign direct investments increase the economic growth of
Southeastern European transition economies?. South-Eastern Europe Journal of
Economics, 6(1).
Sun, P. and Nie, P.Y., 2015. A comparative study of feed-in tariff and renewable portfolio
standard policy in renewable energy industry. Renewable Energy, 74, pp.255-262.
Yusuf, A.A. and Warr, P., 2018. 8 Anti-globalisation, poverty and inequality in
Indonesia. Indonesia in the New World: Globalisation, Nationalism and Sovereignty, p.133.