Protectionism

Anti Free Trade Postcard From 1910. (Corbis via Getty Images ; Getty Images)

Emblem of the Ligue Nationale pour la Défense du Franc

Tariff Rates in Japan (1870-1960)

Tariff Rates in Spain and Italy (1860-1910)

Droits de douane (France, UK, US)

Average Tariff Rates in USA (1821-2016)

Protectionism is an economic policy aimed at restricting imports from other countries to protect domestic industries from foreign competition. This is achieved through various means, including tariffs, import quotas, and other trade barriers. The primary goal of protectionism is to shield local businesses and jobs from overseas competition while promoting domestic production.

Overview

Protectionism has been a contentious issue in global trade discussions. Advocates argue that it helps in safeguarding nascent industries and securing national security by reducing dependence on foreign goods. Critics, however, contend that protectionism leads to inefficiencies in the economy, higher prices for consumers, and can provoke retaliatory measures from trade partners, potentially leading to trade wars.

Forms of Protectionism

• Tariffs: Taxes imposed on imported goods, making them more expensive than locally produced goods.
• Import Quotas: Limits on the quantity of certain goods that can be imported, designed to protect domestic producers from foreign competition.
• Subsidies: Government financial support to local businesses to make their products cheaper on the international market compared to foreign products.
• Non-Tariff Barriers: These include a variety of regulatory and procedural barriers to trade, such as stringent safety standards and customs procedures, aimed at making it more difficult for foreign goods to enter the market.

Arguments For and Against Protectionism

For

• Economic Security: Protectionism is seen as a way to maintain economic sovereignty and security, especially in key industries.
• Infant Industry Argument: New or emerging industries may need protection from international competition until they become competitive on a global scale.
• Job Protection: By limiting imports, protectionism is believed to help preserve domestic jobs.

Against

• Cost to Consumers: Protectionist policies can lead to higher prices for goods and services, as domestic producers are often less efficient than their international counterparts.
• Retaliation: Countries affected by protectionist policies may retaliate, leading to a decrease in exports and potential trade wars.
• Economic Inefficiency: Protectionism can lead to economic inefficiency by supporting uncompetitive industries and reducing the incentive for domestic industries to innovate and improve.

Historical Context

Protectionism has a long history, with its roots traceable to mercantilist policies of the 16th to 18th centuries, which emphasized the importance of accumulating precious metals by promoting exports and restricting imports. In the modern era, the Great Depression of the 1930s saw a rise in protectionist policies, most notably the Smoot-Hawley Tariff Act in the United States, which many economists believe exacerbated the depression by severely reducing global trade.

Contemporary Protectionism

In recent years, there has been a resurgence of protectionist sentiment in various parts of the world. This has been driven by concerns over job losses attributed to globalization, trade imbalances, and the perceived unfair trade practices of some countries. High-profile examples include the trade policies of the United States under the administration of President Donald Trump, who implemented tariffs on steel, aluminum, and various Chinese products, leading to a series of trade disputes.

Conclusion

While protectionism aims to protect domestic industries and preserve jobs, it can also lead to higher costs for consumers, economic inefficiency, and strained international relations. The debate over the merits and drawbacks of protectionism continues, reflecting the complex dynamics of global trade and economic policy.