The greatest economic thinkers and policy makers have always been trying to create an economic system, which will provide “better” aggregate outcomes for the society. In my essay, I will argue that strategic state intervention, under certain circumstances, in the economy may be more beneficial than free trade. “Free trade occurs when there are no barriers to trade, such as taxes on imported goods or bans on imports” (Anderton, 2008, p.613). Although free trade has many benefits, nowadays, almost all countries implement protectionist policies to some extent. Generally, there are two arguments for economic intervention: politics (protecting interest of a certain group) and economics (boosting the overall wealth of the population). The governments
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However, such countries as Japan, Taiwan and South Korea had built their ways from poverty to prosperity very quickly. They could not achieve their progress without protectionist policies. Japanese government decided to protect key sectors of economy that were damaged by war. Steel industry, agriculture and chemical industry were boosted by the government in order to restore their globally competitiveness and heavy import barriers were imposed. Ministry of International Trade and Industry was allocating the foreign exchange that Japanese companies needed in order to pay for imports. As Japanese economist, Kozo Yamamura had famously said: “Protection from foreign competition was probably the most important incentive to the domestic development that the Japanese government provided” (Fletcher, 2011). Such policies are also called the infant industry argument. In the accordance of the argument, “developing countries have a potential comparative advantage in manufacturing, but they are unable to compete with well-established manufacturing in developed countries” (Krugman, 2015, p.309). Government aim should be to protect and support these industries by imposing tariffs and quotas on foreign companies and remove them only when domestic industry will be internationally competitive. South Korean government had also protected its domestic industries that were crucial for the country rehabilitation after the Korean War in 1953. “South Korean government maintained a protectionist outlook, not only imposing high trade barriers but also maintaining an overvalued exchange rate” (Hufbauer, 2007). Moreover, the policy of substitution industrialization in cement and steel industry (important for rebuilding after the War), which aimed to replace foreign imports with that are produced domestically, appeared to be successful.
However, such countries as Japan, Taiwan and South Korea had built their ways from poverty to prosperity very quickly. They could not achieve their progress without protectionist policies. Japanese government decided to protect key sectors of economy that were damaged by war. Steel industry, agriculture and chemical industry were boosted by the government in order to restore their globally competitiveness and heavy import barriers were imposed. Ministry of International Trade and Industry was allocating the foreign exchange that Japanese companies needed in order to pay for imports. As Japanese economist, Kozo Yamamura had famously said: “Protection from foreign competition was probably the most important incentive to the domestic development that the Japanese government provided” (Fletcher, 2011). Such policies are also called the infant industry argument. In the accordance of the argument, “developing countries have a potential comparative advantage in manufacturing, but they are unable to compete with well-established manufacturing in developed countries” (Krugman, 2015, p.309). Government aim should be to protect and support these industries by imposing tariffs and quotas on foreign companies and remove them only when domestic industry will be internationally competitive. South Korean government had also protected its domestic industries that were crucial for the country rehabilitation after the Korean War in 1953. “South Korean government maintained a protectionist outlook, not only imposing high trade barriers but also maintaining an overvalued exchange rate” (Hufbauer, 2007). Moreover, the policy of substitution industrialization in cement and steel industry (important for rebuilding after the War), which aimed to replace foreign imports with that are produced domestically, appeared to be successful.