Protectionism or free trade ?

Protectionism or free trade? Trying to find the best economic policy to enrich a country, these two theories have always been at the forefront. This debate continues to be thought-provoking till today.

Protectionism: actions taken by the government to restrict imports by increasing taxes on goods and services bought from foreign countries.
During the 15th century in western Europe a new economic policy, known as mercantilism, emerged. This policy founded the basics of what’s called today protectionism. It argued that in order to increase a nation’s wealth the country should try to produce as much as possible within its own borders and reduce the reliance on foreign imports, the government’s role is to apply huge tariffs on imported goods to help local industries and protect them from the foreign competitors.
According to this theory, a strong country is the one who can achieve “economic autarky” which means achieving economic self-sufficiency and independence.
The philosophy of mercantilism dominated in western Europe till the 18th century when the Scottish philosopher and economist Adam Smith published his book: “An Inquiry Into The Nature And Causes Of Wealth Of Nations” which was the cornerstone of a new theory that encouraged “Free Trade “.

A Free Trade Policy allows goods and services to be bought and sold across international borders with little or no tariffs and reduces barriers to imports and exports between countries.

Which one is better?
Free trade imposes competition that pushes businesses to be more productive and improve the quality, it also leads to decreasing prices which is good for consumers who also benefit from the multiple choices available in the market.
On the other hand, adopting a free trade policy can have a negative influence on the employment, local industries may not be able to compete with the international corporations so they go bankrupt.
For protectionism, it protects local startups and small businesses from the foreign competitors, preserves the job opportunities they create and gives more growth chances.
However, protectionism has a negative side as well. Its disadvantages influence mainly consumers because it limits their choices and increases the prices. Protectionism also causes economic isolation for the country, which leads to political and cultural isolation too.

Both theories seem to have negative and positive sides but, considering the intense level of globalization our world is living, we can assume that adopting a free trade policy may be a better decision. And this doesn’t prevent that governments still can protect some strategic sectors.

E-money exchange rates

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