The Impact of Protectionism and Free Trade on the US Economy

This essay examines the ongoing debate between protectionism and free trade, with a specific focus on the United States' trade policies. It explores the implications of bilateral and multilateral trade agreements, including the US's relationship with the WTO and NAFTA. The essay delves into the arguments for and against protectionist measures, such as tariffs and quotas, and analyzes their impact on domestic industries, job creation, and overall economic growth. It contrasts these approaches with the benefits of free trade, including comparative advantage and economies of scale, while also considering the challenges of global competition and the role of strategic industries. The analysis considers the views of figures like Donald Trump and his administration's shift towards bilateral agreements. Overall, the essay provides a comprehensive overview of the complex relationship between protectionism, free trade, and the US economy.

Running Head: PROTECTIONISM & FREE TRADE
Protectionism and Free Trade
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Introduction
US President Donald Trump has taken a pledge to abandon all trade negotiations, mainly
multilateral trade deals and he has solely negotiated bilateral trade agreements for his nation.
However, it is not clear for Trump that bilateral trade agreements can produce far rich economic
values than multilateral trade agreements. Donald Trump's administration has not equally
evaluated future and all current trade agreements based on their merits, however, they just
confine the US to trade agreements. In the previous occasion, Donald Trump took his office and
he had withdrawn all memorandums that the United States had with the Trans-Pacific
Partnership. After that, he subsequently took a pledge to nullify all multilateral negotiations with
nations. In past, Trump proclaimed that bilateral trade agreements are beneficial than multilateral
trade agreements and he wanted to have bilateral trade agreements with the UK and Japan (Deal-
making of Trump, Economist.com). Trump is trying to take protectionism trade policy
restraining trade between nations through economic methods. Free trade is a blessing that a
government can offer to people and some think that Trump's protectionism is a fainthearted
decision that tries to protect the US from numerous competitors.
Introduction to the US and its trade policies
US economy has been growing with 3% annual rate in last quarter and Economists were
expecting at least 2.5% economic growth. US have trade agreements with WTO and OECD and
other countries that are both bilateral and multilateral. GDP of US was $18.55 trillion and GDP
per capita of USA was $57,436. The US is one of the developed countries in the world and
inflation rate of the USA is 0.4% in recent time (Deal-making of Trump, Economist.com).
However, US President tries to cancelling all the trade agreements of US and that has been
shown in abandoning the ambitious 12-nations Trans-Pacific Partnership. President Trump ended

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the traditional trade policy and he put an end of multinational agreements of trade that can set
global economics for many years. Trump wants to put an end to the concept that the previous
government’s orthodoxy in expanding global trade of US. Trump thought the trade rules with
Japan, Chile, Canada and Australia are complex web and that Trump wanted to put a stop to
trade agreement. Instead, Trump thought that American employees can be protected against
competition from low-wage countries like Malaysia and Vietnam. On the other side, China can
fill the vacuum what the US is going to make in the global economy by cancelling all kinds of
trade agreements. Trump's withdrawing decision from the trade of Trans-Pacific Partnership
reversed a free-trade policy adopted by presidents of two parties in past during the Cold War.
Trump thought that the multilateral and bilateral trade deals are like ridiculous agreements that
are taken employees from the US and taken the companies from the US, stopping the trade
agreements can make the situation reverse. Dealing North American Free Trade Agreement
(NAFTA), Trump has scheduled meetings with diplomats and leaders of Mexico and Canada
(Deal-making of Trump, Economist.com). NAFTA has always been a major factor in American
trade policy and critics blamed this to lower wages and loss of jobs.
US President’s decisions on cancelling bilateral and multilateral trade agreements in
favour of a protectionist trade policy
Trump's opinions about trade deals are zero-sum and adversarial. Trump opines that other
countries to which the US are dealing in trade are the spoils and they are not just the trade
partners. Trump puts the China's accession to WTO as a bad deal and it has destroyed the chance
of American supremacy in trade and it has been creating issues in American jobs. American
president tries to spread the trade deficit issues around the world and not just the USA. Trump
faces the threat from China and Chinese competition captured export orders from the US, they

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also try to encroach the domestic customers and the global market is filled with cheap products
imports (Irwin; p.56). Trump’s view on trade policy is ambiguous; however, his alarm is not only
the foreign completion but also trade deals suspicion (Aggarwal et al. p.67). However, Trump
does not want to be radical in his decision of trade policy; however, he wants to see the cabinet
choices with making a transformative and seismic shift in trade policy. In Trade policy, he wants
to be US's most protectionists President and Protectionism around the globe is creeping up and
the recent trend can be turbo-charged. Trump imposed a tariff of 35%-45% on products coming
from China and Mexico and these countries could go to WTO's court to intervene. Moreover, US
might face issues in exporting their products to China also a many of the products are sent to
China from the US as China is a potential market.
Concept of bilateral trade agreement
Bilateral trade agreements can be defined as the treaties between two countries giving the
countries favour in trading status with each other (Lester et al. p.56). The main aim of the
bilateral agreement is to give the countries expanded access in each other’s countries in order to
accelerate the economic growth of both participants. In bilateral agreements, there are mainly
five general parts in order to standardise the business. These five operations keep one participant
away from stealing the innovation, products and dumping the products at lower prices. Both
countries in the bilateral agreement cannot do unfair subsidies in the prices they are offering
(Cooper; p.45). These agreements clearly state the standardise regulations like environment
protection, labour standards. This process needs to discuss eliminating the tariffs and trade taxes.
In bilateral trade agreements, both the parties can easily negotiate in differences and
make the things clear. As compared to multilateral trade agreements, bilateral trade agreements
are easier to involve the two nations and to negotiate (Drury et al. p.67).

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Concept of multilateral trade agreement
Multilateral trade agreements can be defined as commerce treaties that are done between
three or more countries. Moreover, in multilateral trade agreements can decrease tariffs and these
make the business easier to export and import (Gleeson et al. p.23). However, in this treaties or
agreements, it is difficult to negotiate as there are many countries associated with this agreement.
Once all countries sign the trade agreement, it becomes robust and it can create large scope for
the countries to do the business. As compared to bilateral agreements, these agreements are
complex and hard to resolute the conflict among countries. Multilateral agreements can impact
on economic growth on the countries as there are many other nations related to this. In this kind
of trade agreement, there are lower trade barriers among the participating countries. These
agreements can result to increase in economic integration among the counties. As suggested by
Mathiason et al. p.34), in order to liberalise the trade in order to make an interdependent global
economy, the multilateral trade agreement is helpful.
In multilateral trade agreement, all the signatories behave same with each other; therefore
no country can get an extra advantage or better deal. On the contrary, in emerging market, the
multilateral trade agreement is critical as it makes the market size smaller and makes the market
less competitive. Moreover, a multilateral trade agreement can increase the business for every
participant in this trade and it standardises the commerce rules for all trading nations. In addition,
multilateral trade agreements enable the trading partner countries to negotiate deals upon the
trade, on the other side, these trade agreements need to undergo through the approval process,
and therefore it takes time (Hoekman et al. p.89). As compared to a bilateral trade agreement,
multilateral trade agreement helps all the countries to develop, unlike bilateral agreement favours
only strong economy country. Negotiations are most of the time make the business practices

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through multilateral agreements make complex and smaller countries with slower economic
growth face the issue to compete with giant nations.
Trade protectionism
In its essence, trade protectionism is a form of economic strategy or policy that primarily
blocks, or at least limits, any form of unfair competition from the foreign industries. Trade
protectionism is, in its core nature, a politically motivated defence mechanism for the country’s
economy and internal industries (Kerr et al. p.78).
In the principles of economics, comparative advantage is a major theory that forms a
strong and acceptable argument in favour of free trade. While even laymen, without any
knowledge about the functions and theories of economics, would understand the fact that free
trade is a necessary tool to help a country develop and flourish in different industries, the same
people would also argue that local companies must be protected and this has to be done by
limiting the import of cheap goods from foreign countries (Lewis; p.67). Imposing tariffs,
subsidies and quotas are the best and most popular ways of making sure that imports from
foreign countries are regulated and exports of the country's own products are higher than the
imports. Protecting domestic industries is a necessity, but this must be done with keeping a lot of
parameters and aspects in mind. In the process of protecting the domestic manufacturers, if the
national economy and performances are hampered, then the adversities are much greater than the
positive outcomes.
Protectionism is a bundle of methods and policies that all aim to restrict trade between
countries and promote fair competition. But the vital aspect that remains ignored is the fact that
protectionism also hampers the advantages that can be reaped from comparative advantage.

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Comparative advantage and free trade are the two most important and valid driver’s of national
development and sustainable development (Yarbrough et al. p.56). The needs for protectionism
rise from the objectives of protecting domestic manufacturers from the foreign cheaper products
and make the domestic manufacturers more competitive. In most cases, this need arises from
weak job markets that can only be revived by making a lot of domestic jobs.
Objectives of protectionism
There are some reasons that are the prime arguments and theories in favour of trade
protectionism. Creating jobs is one of the most important outcomes that are to be achieved from
protectionism.
Different trade barriers can be used to protect sunrise or infant industries of a country.
When a country is getting into a new industry or market, tariffs can actually prove to be
beneficial in order to help the new industry to become steady and a strong operational ground
that can face foreign and international competition. If domestic industries are ensured protection,
there is a high chance that the country would be in turn boosting its own comparative advantage
over other countries (Anderson and Yoto; p.45). Comparative advantage means, in a very broad
and general way, the capability of one country to produce or manufacture one commodity in a
more efficient and optimal process than another country which also produces or manufactures
the same commodity. Economies of scale can benefit infant industries if protection is enabled
and different methods are imposed. Eventually, these industries would expand and develop skills
that would make them eligible to compete with other countries on a global level. The trade
barriers and regulations may then be lifted.

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There are industries in every country that are on the verge of decline and are slowly dying
out. These industries also need protection from foreign competition so that their decline can be
slowed down.
Strategic industries of every country need to be protected because they are vital to the
well-being of the country’s overall sustainable development (Lewis; p.34). Water, energy,
weaponry, food production, heavy engineering are some the basic industries that are given
protection from foreign competition.
President Trump has taken a romise to surrender all multilateral trade agreements and to embrace
the bilateral trade agreements for the United States of America. However, there is an absence of
evidence that the agreements of bilateral trade have produced better economic objectives than the
trade agreements with more than one country (Milner and Tingley; p.313-343). The
administration under Trump should evaluate equally all the current and trade agreements based
on their merits instead of reallocating the America to the bilateral negotiations.
President Trump has taken a promise to surrender all multilateral trade
agreements and to embrace the bilateral trade agreements for the United States of America.
However, there is an absence of evidence that the agreements of bilateral trade have produced
better economic objectives than the trade agreements with more than one country (Milner and
Tingley; p.313-341). The administration under Trump should evaluate equally all the current and
trade agreements based on their merits instead of shifting America to the bilateral negotiations.
President Trump has been quite clear about the intention to repair the trade policy of
United States of America. Days after acquiring office, he took into account the presidential
memorandum by withdrawing the country from the Trans Pacific Partnership (Milner and

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Tingley; p.313-341). This was considered as a 12 nation’s agreement of trade, which has aimed
at enhancing the strategic and economic links to the Asia Pacific region. Subsequently, he
pledged to give up all the multilateral negotiations supporting the bilateral trade agreements with
the countries such as Japan and United Kingdom.
Trump along with his team argued that bilateral agreements have produced trading deals
which would prove to be more advantageous to America. In one of his speeches, Trump outlined
his priorities that America would further negotiate fair and bilateral agreements, which would
bring back jobs and industries to the country. Peter Navvarro, holds same views that the
problems with the multilateral deals is that the country tends to reduce its power of sovereignty
and surrender it (Fukuyama; p.134). These are the criticisms originated from the belief that the
trade agreements with other countries requires United States of America to make more number
of concessions than the trade agreements with only single partner, which results in the origin of
deals which is harming the economy of Country.
The fear of Trump’s opposition to the multilateral trade agreements have given birth to a
significant question: Do the Bilateral Trade yields more growth in economy in the United States
then the multilateral deals in today’s America? What are the consequences?
It is tough to find a simple relationship between the specific trade negotiations and health
of economy. However, after examining the trade growth by following the pathway of new trade
agreements is regarded as a useful proxy (Fukuyama; p.134). This is perfect because the main
aim of the trade agreements in to encourage trade between partners and international trade is
considered as an engine to the growth of economy. It enlarges the market entry for the exporters

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from America, reduces costs of input for the manufacturers from America and prices from for the
country’s consumers.
The following charts would demonstrate the increasing in percentage in the total trades
(U.S. imports + U.S. exports) with the partners of United States one and five years after several
trade agreements of United States came into force (Azevedo, Jost and Ruthmond ; p.231). This
incorporates North American Free Trade Agreement (NAFTA) between Mexico, Canada and
United States as well as carrying forward the bilateral agreements with the other ten nations
around the world. In order to calculate the actual growth in the total trade, the values of dollar in
United States exports and imports are being adjusted by the export price indices and import price
indices respectively.
Chart: 1: Multilateral and Bilateral agreement
(Source: Sundaram; p.47)

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Chart: 2: Multilateral and Bilateral agreement
(Source: Sundaram; p.47)
This states that both the bilateral and multilateral trade benefits America. The reasons that
Trump supported the cancellation of multilateralism is that the pie of global trade in shrinking,
since the year 2010, when the global trade grew at a 20 percent rate. However, the consequences
of embracing Multilateralism are negative. The 80% of the exporters from Mexico now go to
USA and 30% of the GDP of Mexico is from the trade of America.. The central bank of Mexico
would raise the rates of interest to try to slow down the capital flight, which in turn would cause
major unemployment in addition to the import of inflation and a slogging economy. The biggest
negative impact of the shift of Trump on the free trade would be on the international economy.
This major shift to the bilateral trade agreements would take time; produce a lot of uncertainties
as well as the reactions and the counter measures. This would further served to slow down the
volumes of the global trade (Tow; p.100). The emerging market economies would consequently
pay a price in the decreasing sales of export for strategic trade shift of Trump, the final aim of

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which is to restore the economic hegemony of United States in the trade relations over the
partners in trading- the hegemony which has been weakening in the last few years. Therefore, it
can be stated that through the process of weakening multilateralism, Trump after the failure of
WTO DOHA round, the President looks forward to weaken many of the pillars of the post war
stability such as NATO, WTO and UN (Sundaram; p.143). Another important result is that the
other countries would undoubtedly look forward to bypass United States, when it comes to the
trade and investment policy.
Conclusion
In the recent global scenario, the President of the United States of America, Donald
Trump has imposed a number of import duties and regulations to promote American exports.
This has had a large and widespread impact upon the global economy, as the country is one of
the biggest and most powerful economies in the world. With the rise of the modern era, the
concept of globalisation and a much more integrated world system, it was only the logical option
for the countries to adopt free trade. Free trade fuelled the global development and during the
post-World War era, this helped the newly independent countries with providing the support they
needed for a fair and balanced market competition. Free trade was one of the biggest reasons for
the developing countries to quickly catch up, up till a certain extent, to the Western powers. The
countries which had not embraced free trade initially also saw its positive sides and decided to
adopt it in their foreign and economic policies and they had all reaped the benefits of the same.

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