A comparison between protectionism and free trade

Ratification[ edit ] The twenty-eight European Union-member governments will have to approve of the partnership, via unanimous voting under TFEU Articles andon the negotiated agreement in the Council of the European Unionat which point the European Parliament will also be asked for its endorsement. The European Parliament is empowered to approve or reject the agreement. In case the Council of the European Unionfollowing a proposal from the European Commissiondesignates TTIP to be a "mixed agreement", approval from all Parliaments of the EU Member States in accordance with individual constitutional procedures is necessary before the agreement can enter into force.

A comparison between protectionism and free trade

Most of the tariffs above are calculated as a simple average. To calculate this rate, one simply adds up all of the tariff rates and divides by the number of import categories. One problem with this method arises if a country has most of its trade in a few categories with zero tariffs, but has high tariffs in many import categories in which it would never find advantageous to import.

In this case the average tariff may overstate the degree of protection in the economy. This problem can be avoided, to a certain extent, if one calculates the trade-weighted average tariff.

This measure weights each tariff by the share of total imports in that import category. Thus, if a country has most of its imports in a category with very low tariffs, but has many import categories with high tariffs but virtually no imports, then the trade-weighted average tariff would indicate a low level of protection.

The standard way of calculating this tariff rate is to divide total tariff revenue by the total value of imports.

Since this data is regularly reported by many countries this is a common way to report average tariffs. To illustrate the difference, Canada is listed above with a simple average tariff of 7. However, Canada's trade-weighted average, in contrast, is a mere 0.

However, the trade-weighted average tariff is not without flaws. As an example, suppose a country has relatively little trade because it has prohibitive tariffs i. If it has some trade in a few import categories with relatively low tariffs, then the trade-weighted average tariff would be relatively low.

After all, there would be no tariff revenue in the categories with prohibitive tariffs. In this case, a low average tariff could be reported for a highly protectionist country. Note also that, in this case, the simple average tariff would register a higher average tariff and might be a better indicator of the level of protection in the economy.

Of course the best way to overstate the degree of protection is to use the average tariff rate on dutiable imports. This alternative measure, which is sometimes reported, only considers categories in which a tariff is actually levied and ignores all categories in which the tariff is set to zero.

Since many countries today have many categories of goods with zero tariffs applied, this measure would give a higher estimate of average tariffs than most of the other measures. Countries also implement quotas, import licenses, voluntary export restraints, export taxes, export subsidies, government procurement policies, domestic content rules, and much more.

In addition, there are a variety of domestic regulations which, for large economies at least, can and do have an impact on trade flows. None of these regulations, restrictions or impediments to trade, affecting both imports and exports, would be captured using any of the average tariff measures.

Nevertheless these non-tariff barriers can have a much greater effect upon trade flows than tariffs themselves. The Ideal Measure of Protectionism Ideally, what we would like to measure is the degree to which a government's policies both domestic and trade policies affect the flow of goods and services on both the import and export side between itself and the rest of the world.

Thus, we might imagine an index of protectionism IP defined as follows: Where the numerator represents the sum of all exports and imports across all N trade categories given the current set of trade policies, and the denominator represents the sum of all exports and imports that would obtain if the government employed a set of domestic policies that had no impact on trade of goods and services with the rest of the world.

If we could calculate and compare the index across many countries, then we could say that countries with a smaller value were more protectionist than countries with a higher value. We could also monitor changes in the index over time for a particular country.

A comparison between protectionism and free trade

Increases in the index value would indicate trade liberalization, while decreases in the index would indicate growing protectionism. The problem with this index, however, is that although it is easy to define, it would be virtually impossible to measure.

At least, I know of no way of doing so without making extreme leaps of faith. Nevertheless, the index definition is useful as a way of indicating how far from ideal are any traditional measures of protection such as average tariff rates.A stockbroker sells or buys stock on behalf of a customer.

The stockbroker works as an agent matching up stock buyers and sellers. A transaction on a stock exchange must be made between two members of the exchange — a typical person may not walk into the New York Stock Exchange (for example), and ask to trade . What are some major differences between protectionism and mercantilism?

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Mercantalism was about making money from trade. Protectionism is about stopping trade. Free Trade vs Protectionism No country in the world is self reliant and has to depend on other nations to meet the demands of its infrastructure and economy. Trade between countries is as old as civilizations but of late there has been a debate over the pitfalls of protectionism and the benefits of free trade [ ].

Resurgence of protectionism

Choosing between Protectionism and Free Trade in an Uncertain World Peter Debaere1, Toni Glaser2, and Gerald Willmann2,3 1Darden School of Business, University of Virginia 2Bielefeld University, KU Leuven 3IfW Kiel June 27, Abstract We develop a 2x2x2 general equilibrium model of trade with imperfect capital mo-.

List of Abbreviations 1 List of Abbreviations ACFTA ASEAN-China Free Trade Agreement AH Animal Health. Free trade is when a country specializes in one or two areas ofgoods or service and allows a trade with other country or countriesthat specializes in different area while protectionism is when.

Free Trade vs. Protectionism - NAFTA, TPP, TTIP & BIT