Justifying selective protectionism


Claim

  1. The free trade versus protectionism debate should be relabeled the crude protection versus selective protection debate. 1. Aggresive exporting countries can produce and export a full range of products, minimizing comparative advantage. 2. Floating exchange rates can work for you or against you extremely effectively. 3. The aggressive exporter's currency appreciates and it gains in value against other currencies. Its export products become more expensive (less competitive). The aggressive exporting country needs to increase its foreign based production to compensate, and/or it must cut exports and import more. A crude balance is restored.

    But this economic cycle leads to the problem of damaging time lags. For instance, it has taken over two decades for the Japanese yen exchange rate to adjust to the reality of Japan's export power. But in two decades, whole industries go out of production and related social and economic woes flare up in other countries (e.g. nations not experiencing an aggressive export stage). In such countries, the chances of a serious comeback in devastated economic fields can be destroyed. Consumer led recoveries cannot hide weak industrial bases and its related problems. As new aggressive exporting countries emerge whilst older exporting countries begin to slow or stall through their own success, it can again take a considerable amount of time (decade(s)) before new aggressive exporting countries' currencies appreciate to the right level. By that time another generation of exporters will be on the move at the (further) expense of other countries. Such suffering countries obviously need breathing space (indeed, some nations must remain strong for global stability (and some potential aggressive exporting countries may increase global instability)). One proposed strategy to create breathing space is to use selective protection to preserve an essential industrial base and curb unemployment. Such action needs to carried out quickly, and not in twenty years. It is really a race against time.


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