When it comes to making trade policy, I do not believe that it is as simple as choosing sides between businesses or consumers. If a government was to completely side with either party, the resulting economic conditions would be suboptimal compared to if the government could strike a balance between the two.
In a general sense, the benefits of adopting a trade policy that prioritizes the interests of businesses and employees over those of consumers will result in a net negative for the economy by generating benefits that are outweighed by the costs to consumers (Hill, 2018). In this situation, certain companies or industries will realize a benefit (ex. Protection from foreign investors resulting in increased demand domestically) however domestic consumers will indirectly fund this benefit in the way of increased costs. At a macro level, adopting a business-first trade policy could shrink the size of the economic pie (Broadman, 2018). To protect businesses and their employees, a government would have to put policies in place which would institute relatively higher tariffs or subsidies. The risk here, other than the previously mentioned higher cost to consumers of domestic goods, would be possible retaliation from trade partners who may institute tariffs on domestically made goods to be exported. In this situation, not only would domestic goods become more expensive but so would imported goods. This would compound the adverse impact on domestic consumers. In a world of retaliatory trade actions, the entire global economy would shrink leaving no winners. However, tariffs and other government interventions continue to exist in the world because certain groups influence politicians who are in charge of trade policy (Hill, 2018). These policies are in place not because they support sound economic principles, but because the groups of people with influence hold a certain amount of political power in the way of lobbyists or potential votes in upcoming elections.
Conversely, siding completely with consumers may come with its own set of risks. In some instances, government intervention may be warranted as it relates to long term strategic and economic goals. For example, government intervention may be necessary to assist a new company in gaining a foothold in which foreign firms enjoy a competitive advantage (Hill, 2018). In this case, the government aid should be temporary and only last long enough to overcome current barriers to entry and at the point, the new company has reached a scale in which the competitive advantage has been neutralized, the trade policy should be revisited. If the protectionist trade policy is not revised, this may pave the way for the firm receiving aid to operate inefficiently and result in domestic consumers indirectly paying the costs via higher taxes, prices, or both. If the government carefully enters into trade policies such as this and monitors the situation then the government intervention could benefit both industries and the consumers over the long run.
Richard D’Aveni made an interesting argument as it pertains to choosing sides between industry and consumers. He argues that a choice may not need to be made at all because placing the interests of consumers as a top priority may grow the domestic economy which will end up strengthening industries (D’Aveni, 2012). Absent a situation when a domestic government is forced to develop trade policy as a means of counteracting another country’s protectionist trade policy, I tend to agree with D’Venti that favoring the consumer may leave the economy as a whole in better shape than it would be by explicitly favoring industry. However, protectionism is a reality in today’s global economy and should be considered accordingly.
Hill, C.W. (2018). International Business: Competing in the Global Marketplace (12th ed.). New York, NY: McGraw Hill Education.
D’Aveni (2012). When Consumers Win, Who Loses? Retrieved from: https://hbr.org/2012/09/when-consumers-win-who-loses
Broadman, H. (2018). We All Should Worry About Trump’s ‘Divide And Conquer’ Trade Policy. Retrieved from: https://www.forbes.com/sites/harrybroadman/2018/06/29/we-all-should-worry-about-trumps-divide-and-conquer-trade-policy/#6be902545346
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