Globalization vs. Protectionism

Globalization is an opportunity for workers within an industry where a country has a comparative advantage in that industry, while it is a very real threat to workers in industries that have no comparative advantage or in countries where comparative advantages have been diminished by exploitation. When input of resources is equal, a country is said to have a comparative advantage over another country when their productivity and profits are intractably greater that of their competitor nation, due to an intrinsic absolute advantage of efficiency of output. Countries that can produce a good or service at a lower cost can gain a larger market share for their product when trade barriers such as tariffs are limited and open trade is encouraged.

In fact, without the availability of open market policies, increasing market share for many U.S. companies would not be possible as the U.S. economy alone may longer support their growth, (Champy, 2008). Champy goes on to outline seven steps which a company can take to seize the economic opportunity that is presented by globalization including: developing a global business model, becoming a low-cost producer, focusing on value, finding the right global partners, hiring the best local workforce , maintaining consistent values across cultures, and strengthening financial capabilities.

The largest major identifiable threats to globalization and international trade are national protectionist policies. Countries that support international trade can compete in larger markets than those countries that adopt nationalistic protectionist policies. Inevitably, other countries cease to trade with countries that adopt these protectionist policies. Many American politicians, in response to fears expressed by American workers as a result of the recent economic crisis, are openly criticizing the North American Free Trade Agreement, (NAFTA), and espousing protectionist policies despite the fact that NAFTA has generated 26 million jobs in the United States, (Dowd, 2009).

According to Ricardian theory, each nation has a fixed endowment of natural resources, (Appleyard, Field, & Cobb, 2010). Countries exchange these natural resources in order to develop. It is clear that in order for a nation to compete successfully in a global market it must be able to retrain their workers into industries in which it can specialize in industries that utilize these resources. Retraining workers to be productive in industries where they have a comparative advantage should be easily accomplished in developed and developing nations. Additionally, for traditionally underdeveloped nations, or those nations where resources have traditionally been exploited and historically no developed value has been added, globalization provides an advantage in that these nations often realize the highest return on foreign investment, (Anyanwu, 2006).

For all nations global trade could potentially be beneficial for those workers in industries where the nation has a comparative advantage, though for certain nations open trade can pose an even greater benefit. Nations that attempt to protect industries where they cannot achieve a comparable advantage will suffer under increasing globalization.

References:
Anyanwu, J. C. (2006, April). Promoting of Investment in Africa. African Development Review, 18(1), 42-71. Retrieved from EBSCOhost Business Source Complete.
Appleyard, D., Field, A., & Cobb, S. (2010). International economics (7th ed.). New York: McGraw-Hill Irwin.

Champy, J. (2008, January 1). Is global trade a threat or opportunity? Financial Executive, 24(1), 36-41. Retrieved from EBSCOhost Business Source Complete.
Dowd,A. (2009, April 1). The rising tide of protectionism in the United States. Fraser Forum. 31-33. Retrieved from EBSCOhost Business Source Complete.