Background
Sensitive sectors refer to specific areas of the economy that are particularly susceptible to negative impacts from international trade competition. These sectors often focus on market and job losses due to challenges primarily arising from imports from countries with natural or developed comparative advantages.
Historical Context
Since the onset of globalization and liberalization of trade, economies have witnessed a shift where some industries, especially in developed nations, face intense competition from less developed countries. This shift prompted various industry groups to seek protectionist measures to safeguard jobs and domestic enterprises.
Definitions and Concepts
Sensitive sectors are those industries within a country that are particularly vulnerable to adverse impacts from foreign competition. Typically, these industries include:
- Agriculture
- Textiles and Clothing
- Iron and Steel
- Basic Chemicals
The concerns arise due to these sectors’ susceptibility to price and cost advantages held by manufacturers in less developed nations.
Major Analytical Frameworks
Classical Economics
In classical economics, protection of sensitive sectors may be viewed as a divergence from the principles of free trade. The theory endorses comparative advantage and suggests that trade benefits all parties when they specialize in their strengths.
Neoclassical Economics
Under neoclassical thought, protectionist measures for sensitive sectors are seen as distortions in the market that hinder efficient resource allocation and real income growth.
Keynesian Economics
Keynesians might justify protective measures for sensitive sectors during economic downturns to safeguard employment and income, thereby stabilizing aggregate demand.
Marxian Economics
Marxist analysis might view the liberalization pressures on sensitive sectors as part of a broader critique of capitalism, where the interests of labor (often concentrated in sensitive sectors) are subordinated to the-profit motives of international capital.
Institutional Economics
This perspective takes into account the roles of institutions and their influence on the economy. It contends that sensitive sectors might need protection due to structural and systemic biases favoring more modern or dominant industries.
Behavioral Economics
Behavioral economists acknowledge that the fear and opposition from those working in sensitive sectors may stem from loss aversion, status quo bias, and other cognitive biases which impede acceptance of trade liberalization.
Post-Keynesian Economics
Post-Keynesians may argue that sensitive sectors require active government support to maintain full employment and economic stability, particularly when confronting volatile global markets.
Austrian Economics
Austrian economics may oppose protective measures as interventions disturbing market forecasters and processes. It would suggest that market dynamics should define which sectors thrive or fade.
Development Economics
From this angle, lifting protections for sensitive sectors in developed economies could aid the development of industries in less developed countries by providing better market access for their cheaper products.
Monetarism
In monetarist thought, the protection of sensitive sectors would be typically seen as harmful to the overall economic health, advocating instead for focusing on monetary stability and controlling inflation.
Comparative Analysis
Sensitive sectors such as agriculture and textiles tend to show resilience in international markets when shielded from full liberalization. Their protection often comes in the form of subsidies, tariffs, and quotas, which contrast with the general economic belief in the benefits of open trade.
Case Studies
Agriculture in the European Union
The Common Agricultural Policy (CAP) within the EU provides significant subsidies to EU farmers, highlighting a protectionist approach favoring sensitive sectors despite general principles of free trade.
Steel in the United States
The U.S. steel industry has received various forms of protection, such as tariffs, to shelter it from foreign competition predominantly from China and other low-cost producers.
Suggested Books for Further Studies
- “Globalization in an Age of Crisis: Multilateral Economic Cooperation in the Twenty-First Century” by R. C. Feenstra, A. M. Taylor
- “Development as Freedom” by Amartya Sen
- “Free Trade Under Fire” by Douglas A. Irwin
Related Terms with Definitions
- Comparative Advantage: The ability of a country to produce a particular good or service more efficiently than other countries, leading to specialization.
- Trade Liberalization: The process of reducing tariffs and other barriers to allow freer flow of goods across borders.
- Protectionism: Government actions and policies that restrict or restrain international trade to protect local businesses and jobs from foreign competition.
