Analyse the Impact of Reduced Levels of Protection on the Global Economy

Protection can be defined as government policies such as tariffs, subsidies and quotas, which give domestic producers an artificial advantage over foreign competition, in order to protect them from international competition. Although protection has many benefits at a global level, reduced levels of protection have various effects on the global economy. Countries may choose to reduce protection in order to increase efficiency and productivity levels, and on a global scale, this leads to international competition. This affects the global economy in both a positive and negative way. On one side, this increases productivity but on the other hand, infant industries will find it difficult to compete against foreign and more established firms without the advantage of protection policies.

When trade barriers are enforced, trade flows are redirected rather than created and thus the global economy doesn’t get to take advantage of the benefits of trade. Thus by reducing these barriers and creating trade flows, jobs are created, incomes increase, living standards improve and as a result of countries benefiting from this, the global economy will experience economic growth as the size of a firm’s market increases.  

Reduced levels of protection leads to a more efficient allocation of world resources due to the effects of comparative advantage. At a domestic level, the productivity of resources increases as a result of this, and in turn this impacts on the global economy, by increasing the productivity of world resources. Protection on the other hand, leads to a misallocation of resources, as resources are being transferred to from efficient industries to inefficient ones and thus reduced levels of this would have a reverse effect.

This efficient allocation of world resources would in turn lead to an increased output from these resources, thus increasing total world output or Gross World Product (GWP). This is due to each country engaging in specialisation, as...