Restrictions on trade: What does it mean for the economy?

Abstract

This thesis studies the impact of restrictions on trade on the economy. Its objective is to answer the question: “What kind of an impact do trade barriers have on the econo-my” and “is protectionism more advantageous than free trade, or is it the other way around?” The current belief among the economists is that the free international trade is better than restricted, and this thesis tries to show whether this is the case. The theoretical framework for this thesis is the theories of protectionism and free trade. It explains what they mean and how they have been implemented in the history and today. The data gathered for this thesis consists of economic theories concerning the interna-tional trade theories, economic history and present date analyses. The empirical part of this thesis is divided into two parts: past and present. The past part puts the theory in a historical context to show how the theories have worked in the past. The current-part then puts the theories on present date to show how they work today. For the historical part four countries were chosen; The United States, The Unit-ed Kingdom, China and Japan. These were chosen because they have been using restrictions on trade in the past and are now in the top ten of the biggest economies. For the present date the United States and the United Kingdom were chosen. These two were chosen because currently the first one is erecting new trade barriers and the latter is facing a threat of them. As a conclusion it was found out that protectionism has worked in the past, but switch-ing from open international trade to closed economy by erecting trade barriers causes more damage than good. Even the threat of trade barriers causes uncertainty which causes serious trouble for the economy.