When it comes to international trade, governments should follow two major strategies: free trade policy and protectionist policy. As the name suggests, the free trade policy allows for free trading of goods and services. The benefit of this policy is its increased trade, which is better for the economy. On the other hand, the protectionist policy tends to apply strict regulations that protect the interests of local firms like small and medium enterprises (SMEs). Depending on the business, the two will have both pros and cons.
The Case for Free Trade
There are several reasons why free trade can be considered highly beneficial for SMEs. First and foremost, because there is heightened competition in the market, free trade allows goods and services to produce more efficiently. Secondly, this policy also helps reduce the degree of regulations that govern the market, resulting in reduced compliance costs and improvements within the margins. However, a downside may be that both of these benefits are indirect.
The Case for Protectionism
A protectionist policy is implemented to safeguard industries like energy and steel. This strategy can be highly beneficial for SMEs because it allows them to have a bigger share of the local market. The policy also enables SMEs to receive help from the local government in the form of subsidies and tax breaks. Such measures can often be a big boost to these companies because they allow for rapid expansion and can be a growth driver for SMEs in any country.
So What’s Best?
In conclusion, a protectionist policy may be able to deliver better results to SMEs because it can provide more direct benefits. For more information about international trade, subscribe to EXIMA today!