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Anatomy of the Global Economy and Its Implications for Protectionism

November 23, 2017 • GLOBAL ECONOMY, Capitalism in the 21st Century

By Sa’idu Sulaiman

Can protectionism, a major component of mercantilism which was practiced in Europe from 16th to 18th century, be well-suited with the global economy in the era of globalisation? This discourse examines the framework of the global economy in the context of advanced globalisation by citing relevant literature and then explains its implications for protectionism. It shows that the global economy is, among others, characterised by interdependence among nations which does not go well with protectionism, and concludes that the adoption of positive globalism and supplementing macroeconomic policies with globoeconomic policies could be more useful to the global economy.

 

Introduction

The global economy is the sum total of the economies of individuals, corporations and all nations in existence today. It is influencing the economies of individual nations and at the same time being influenced by macroeconomic policies of the individual nations and the economic policies of world bodies like the World Trade Organization, World Bank, International Monetary Fund, etc. Protectionism, a significant component of the 16th mercantilist economist system that emerged in Europe, is still being pursued to protect national economies from the perceived and real threats of globalism and international competition. It has repercussions for the global economy. The global economy too, as product of the forces of globalisation, has acquired certain features and components which define its anatomy and strengthens its influence on or reactions to protectionist policies. The goals of this article are examining the anatomy of the global economy in the era of globalisation and explaining its implications for protectionism.

 

Protectionism as an Essential Component of Mercantilism

To understand why protectionism is an essential component of mercantilism or economic nationalism, one needs to know the history mercantilism and its main characteristics and goals. Mercantilism became popular in Europe during the 1500s. It replaced the older, feudal economic system in Western Europe, especially in Netherlands, France and England. In England, the first large-scale and integrative approach to mercantilism was started during the Elizabethan Era (1558-1603). The most notable people in establishing the English mercantilist system include Gerard de Malynes and Thomas Mun, who first articulated the Elizabethan system which was developed further by Josiah Child. Mercantilism was the economic version of warfare that used economics as a means for warfare. It was a form of economic nationalism.1

Laura LaHaye, an Adjunct Professor at the Illinois Institute of Technology and former research economist with the General Agreement on Tariffs and Trade, writes that the means of achieving the goals of mercantilism include, among others, imposing high tariffs on the importation of finished goods that competed with local manufacturers, and low or no taxes on the importation of raw materials or exotic products. Other goals are imposing low or no taxes on the export of finished goods, and high taxes on the exportation of raw materials. The mercantile system, she adds, “served the interests of merchants and producers such as the British East India Company, whose activities were protected or encouraged by the state”.2 Mercantilism has advantages and disadvantages. It had a positive impact on Britain helping it to turn into the world’s dominant trader and global power. The Italian city-state of Venice, which monopolised the Mediterranean pilgrim and spice trades, prohibited the importation of finished products and forced all Venetian naval traffic to make a stop in Venice regardless of the cargoes final destination. This ensured additional economic activities within Venice and enriched it at its consumers’ expense.3

The first school of economic thought to completely reject mercantilism was that of the physiocrats, a group of French scholars led by François Quesnay (1694-1774).4 As advocates of laissez-faire, the physiocrats saw no distinction between domestic and foreign trade and believed that all trade was beneficial both to the trader and the public, in contrast to the mercantilists who perceived trade as a zero-sum game. Adams Smith, who is considered to be greatest critic of mercantilism, regarded the mercantile system as a gigantic conspiracy by manufacturers and merchants against consumers. He demonstrated that trade, when freely initiated, benefitted both parties and that specialisation in production allowed for economies of scale which improved efficiency and growth. He also pointed out that the collusive relationship between government and industry was harmful to the general population.5

A study that involved respondents from 33 countries across five continents investigated how the different characteristics of both individuals and countries determine peoples’ support for protectionism. Part of the results indicate that support for protectionism increases when inflation pressures become high despite the fact that trade liberalisation would rationally push prices down. The researchers’ conclusions, among others, are that the best way to overcome the pessimistic view about free trade is to increase peoples’ skills; more educated people are more likely to support free trade wherever they reside; and finally, supply of transparent information about trade restrictions, trade composition and the significance of export sectors and foreign markets might also reduce peoples’ support for protectionism.6

 
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About the Author

Sa’idu Sulaiman is a Chief Lecturer of Economics at the Sa’adatu Rimi College of Education, Kano, Nigeria. He is also an author of books such as 12 Facts about Protectionism and the Global Economy, 9 Requirements for Quality Research and Academic Papers, Unforgettable Experiences in Abuja, Manchester and London, two recent novels, The Desperate Migrant and What Matters Most.

 

References

1. Mercantilism. Retrieved on February 12, 2017 from https://en.m.wikipedia.org/wiki/Mercantilism
2. Laura LaHay (2008) Mercantilism. Liberty Fund, Inc. Retrieved on February 16, 2017 from http://www.econlib.org/library/Enc/Mercantilism.html
3. Mercantilism. Retrieved on February 13, from https://en.m.wikipedia.org/wiki/Mercantilism
4. Sulaiman, Sa’idu (2012) The Making of Economics: an Introduction to the History of Economic Thought. Kano: Samarib Publishers.
5. Mercantilism. Retrieved on February 12, 2017 from https://en.m.wikipedia.org/wiki/Mercantilism and Laura LaHay (2008 ) Mercantilism. Liberty Fund, Inc Retrieved on February 16, 2017 from    http://www.econlib.org/library/Enc/Mercantilism.html
6. Melgar, Natalia; Milgram-Baleix, Juliette and Rossi1, Máximo (2013) “Explaining Protectionism Support: The Role of Economic Factors” International Scholarly Research Notices (ISRN) Economics.Volume 2013 (2013),  14 pages. Accessed  of September 12, 2017 from https://www.hindawi.com/journals/isrn/2013/954071/
7. AAG Centre for Global Geography Education (undated) Global Economy Module: Conceptual Framework. Retrieved on September 11, 2017
8. Memedovic, Olga and Lapadare, Lelio (2009) Structural Change in the World in the World Economy: Main Features and Trends, Research and Statistics Branch Working Paper 24/2009. United Nations Industrial Development Organization. Retrieved on September 11, 2017 from    http://www.unido.org>Pub_free>Structrural_change_in-the_world_economy.pdf
9. Keet, D. 1999, Globalization and Regionalization: Contradictory Tendencies, Counteractive Tactics or Strategic Possibilities. (Braamfontein: The Foundation for Global Dialogue)
10. Organisation for Economic Co-operation and Development (2017) Why open markets matter OECD Direct. Retrieved on September 12, 2017 from http://www.oecd.org/trade/whyopenmarketsmatter.htm
11. Sulaiman, Sa’idu (2004) The Impact of Globalization on Macroeconomic Policies of Nations and the Need for the Adoption of Globoeconomics, unpublished paper.
12. See Sulaiman, Sa’idu (2017) 12 Facts about Protectionism and the Global Economy. Available at https://www.amazon.com/Facts-About-Protectionism-Global-Economy/dp/1544739036
13. For details, see Wharton School of the University of Pennsylvania (2017) Do Trade Agreements Lead to Income Inequality? Retrieved on February 6, 2017 from http://knowledge.wharton.upenn.edu/article/do-trade-agreements-lead-to-income-inequality/

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