What are the causes of global protectionism

international economic Relations

Klaus-Peter Kruber

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Born in 1944, is professor for economics / politics and its didactics at the Christian-Albrechts-Universität zu Kiel and director at the institute for social sciences. His main research areas are conceptual approaches to economic education, the relationship between economic and political didactics, the history of theory of economic thought and international economic relations. Prof. Kruber studied economics and economic geography at the University of Bonn and then worked at the Universities of Erlangen and Wuppertal. In 1975/76 he was appointed professor at what was then the Kiel University of Education. Since 1994 he has been teaching economics / politics at the Faculty of Economics and Social Sciences at Christian-Albrechts-Universität.

Email: [email protected]

Anna Lena Mees

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After completing her studies, she works as a teacher at grammar schools (economics / politics and English) as an employee at the chair for economics / politics and its didactics.

Christian Meyer

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Christian Meyer is a research associate at the Institute for Social Sciences at the Christian-Albrechts-Universität zu Kiel. After completing his studies in economics / politics and mathematics (teaching post for grammar schools), he works there at the chair for economics / politics and its didactics.

Email: [email protected]

Economic policy decisions are based on theoretical knowledge. These also provide benchmarks for assessing the controversy between free trade and protectionism, which has always accompanied international economic relations.

Economic location theories see the infrastructure of a place as an important economic factor, among other things. (& copy AP)

Classic foreign trade theories

Since the beginning of economics at the end of the 18th century, research has been conducted into the causes and determinants of the international division of labor. Theoretical findings form the basis of economic policy decisions and are necessary in order to be able to assess the controversy surrounding free trade versus protectionism, which continues to this day.

The advantage of international exchange is obvious when it comes to goods that only occur in one country at a time. One speaks here of unavailability. The cause is an insufficient quantity or quality of the required production factors in the country concerned. Due to the different nature of the soil factor, which also includes the climate and raw material resources, some countries cannot manufacture or offer some goods themselves, examples are crude oil or tropical fruits. Such natural production conditions can only be changed at great expense, if at all. For example, greenhouses would first have to be built in order to be able to grow bananas in Germany.

But even if two countries can produce the same goods, for example coal and wheat, there are often considerable absolute cost differences in production (due, for example, to different mining depths or climatic zones). Then it is advantageous for each of the countries to specialize in the good for which it has absolute cost advantages and to export part of its production and to import the other good, which can only be produced at home much more expensive. In this way, both states transfer production factors from the respective areas with lower costs to those in which they have cost advantages. In this way the total production of both countries can be increased, which represents a welfare gain.

The founding father of political economy, the Scottish philosopher Adam Smith (1723-1790), already explained these advantages of specialization through the international division of labor in a vivid example in 1776: "A family man who acts farsightedly follows the principle of never trying to produce anything He can buy cheaper elsewhere. So the tailor does not try to make his shoes himself, he rather buys them from the shoemaker. The latter in turn will not sew his clothes himself, but has them made by the tailor. Even the farmer does not try one of them the other, he buys both from the artisan. Everyone thinks that it is in their own interest to transfer their acquisition without restriction to the area in which they are superior to their neighbors and the rest of the needs with part of their product or what is the same thing with the proceeds of it to buy. But what is reasonable in the behavior of a single family, can hardly be foolish for a mighty kingdom. If another country can supply us with a commodity that we are not able to produce cheaper ourselves, then it is simply more advantageous for us to buy it with part of our products, which we can produce more cheaply than abroad. " der Nations, quoted from the edition published by HC Recktenwald, 6th edition Munich 1993, p. 371 f.).

But what if, in an initial situation with no trade between two countries A and B, country B can produce all goods more cheaply than A? Then there is - at least for B - no incentive to trade with A? Nevertheless, we observe that countries like Germany and Poland conduct intensive trade, although most goods could be produced more cheaply in Poland. The English economist David Ricardo (1772-1823) found an answer to this question with the theorem of comparative cost advantages. Suppose Poland can produce both steel and automobiles more cheaply than Germany. Poland's cost advantage in steel production is, however, much greater than in the case of cars. Then it is worthwhile for both countries if Poland specializes in steel and Germany in cars and both countries buy the other goods in the neighboring country. The advantage of the international division of labor is based in this case on comparative cost differences due to different productivity ratios between the two countries in the manufacture of the two products.

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Effect of comparative cost advantages

A simple model (two countries A and B, they each have 100 units of labor as the only production factor, they produce two goods: steel and cars, transport costs are not incurred) should clarify the principle of comparative costs. With 100 labor units, four units of steel or six cars - or a corresponding combination of both - can be produced in country A per day. In country B, 100 work units per day can produce twelve units of steel or eight cars - or a corresponding combination of both.

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The straight lines in the figure limit the production possibilities of the respective countries, they are also called transformation curves.
Country B is superior to A in both products, but in different proportions: The productivity (production volume per unit of work) of B exceeds that of A for cars by 33 percent, for steel by 200 percent. You can also express the situation differently if you look at the transformation curves: starting from any combination of steel and cars, country A has to forego 0.67 units of steel if it wants to produce one more car. That is, in country A the opportunity cost of a car is = 0.67 units of steel. In country B, the production of an additional car requires 1.5 units of steel to be dispensed with, so the opportunity cost of a car is 1.5 units of steel. Calculated in opportunity costs, cars in A and steel in B are cheaper. It is worthwhile for a dealer from country A to get cars from A to B and sell them there for steel: At home in A he receives 0.67 units of steel for a car, in neighboring country B he receives 1.5. Country A will specialize in car production and buy steel in B, conversely for country B that it specializes in steel and buys cars in A.
The specialization through international trade leads to an increase in prosperity for both countries. Assume that before trading began, country A produced two units of steel and three cars, and country B produced nine units of steel and two cars (see figure below, dotted line). A now uses all the work units in car production. It produces six cars, exports three of them and uses the proceeds to buy three units of steel in country B. Country B specializes in steel; of the twelve units it exported three and received three cars in return. As you can see, both countries are better off after the swap than before: (dashed line) A has the same number of cars, but more steel, the reverse is true for B. In the figure, this is shown by the fact that both countries reach a point to the right of their transformation curve. In the example, an exchange ratio (exchange rate) of 1: 1 is assumed, then both countries benefit to the same extent. In fact, the exchange ratio can range between 0.67 and 1.5 - depending on the situation, one or the other country benefits more from international trade.
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