Protectionism

Political poster from the Liberal Party displaying their views on the differences between an economy based on Free Trade and Protectionism. The Free Trade shop is shown as full to the brim with customers due to its low prices. The shop based upon Protectionism is shown as suffering from high prices and a lack of customers, with animosity between the business owner and the regulator.

Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations. Proponents claim that protectionist policies shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors. However, they also reduce trade and adversely affect consumers in general (by raising the cost of imported goods), and harm the producers and workers in export sectors, both in the country implementing protectionist policies, and in the countries protected against.

There is a consensus among economists that protectionism has a negative effect on economic growth and economic welfare,[1][2][3][4] while free trade, deregulation, and the reduction of trade barriers has a positive effect on economic growth.[2][5][6][7][8][9] In fact protectionism has been implicated by some scholars as the cause of some economic crises, in particular the Great Depression.[10] However, trade liberalization can sometimes result in large and unequally distributed losses and gains, and can, in the short run, cause significant economic dislocation of workers in import-competing sectors.[11]

Protectionist policies

Logo of Belgium's National League for the Franc's Defense, 1924

A variety of policies have been used to achieve protectionist goals. These include:

  • Protection of technologies, patents, technical and scientific knowledge [12][13][14]
  • Prevent foreign investors from taking control of domestic firms[15][16]
  • Tariffs: Typically, tariffs (or taxes) are imposed on imported goods. Tariff rates usually vary according to the type of goods imported. Import tariffs will increase the cost to importers, and increase the price of imported goods in the local markets, thus lowering the quantity of goods imported, to favour local producers. Tariffs may also be imposed on exports, and in an economy with floating exchange rates, export tariffs have similar effects as import tariffs. However, since export tariffs are often perceived as "hurting" local industries, while import tariffs are perceived as "helping" local industries, export tariffs are seldom implemented.
  • Import quotas: To reduce the quantity and therefore increase the market price of imported goods. The economic effects of an import quota is similar to that of a tariff, except that the tax revenue gain from a tariff will instead be distributed to those who receive import licenses. Economists often suggest that import licenses be auctioned to the highest bidder, or that import quotas be replaced by an equivalent tariff.
  • Administrative barriers: Countries are sometimes accused of using their various administrative rules (e.g. regarding food safety, environmental standards, electrical safety, etc.) as a way to introduce barriers to imports.
  • Anti-dumping legislation: "Dumping" is the practice of firms selling to export markets at lower prices than are charged in domestic markets. Supporters of anti-dumping laws argue that they prevent import of cheaper foreign goods that would cause local firms to close down. However, in practice, anti-dumping laws are usually used to impose trade tariffs on foreign exporters.
  • Direct subsidies: Government subsidies (in the form of lump-sum payments or cheap loans) are sometimes given to local firms that cannot compete well against imports. These subsidies are purported to "protect" local jobs, and to help local firms adjust to the world markets.
  • Export subsidies: Export subsidies are often used by governments to increase exports. Export subsidies have the opposite effect of export tariffs because exporters get payment, which is a percentage or proportion of the value of exported. Export subsidies increase the amount of trade, and in a country with floating exchange rates, have effects similar to import subsidies.
  • Exchange rate control: A government may intervene in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market. Doing so will raise the cost of imports and lower the cost of exports, leading to an improvement in its trade balance. However, such a policy is only effective in the short run, as it will lead to higher inflation in the country in the long run, which will in turn raise the real cost of exports, and reduce the relative price of imports.
  • International patent systems: There is an argument for viewing national patent systems as a cloak for protectionist trade policies at a national level. Two strands of this argument exist: one when patents held by one country form part of a system of exploitable relative advantage in trade negotiations against another, and a second where adhering to a worldwide system of patents confers "good citizenship" status despite 'de facto protectionism'. Peter Drahos explains that "States realized that patent systems could be used to cloak protectionist strategies. There were also reputational advantages for states to be seen to be sticking to intellectual property systems. One could attend the various revisions of the Paris and Berne conventions, participate in the cosmopolitan moral dialogue about the need to protect the fruits of authorial labor and inventive genius...knowing all the while that one's domestic intellectual property system was a handy protectionist weapon."[17]
  • Political campaigns advocating domestic consumption (e.g. the "Buy American" campaign in the United States, which could be seen as an extra-legal promotion of protectionism.)
  • Preferential governmental spending, such as the Buy American Act, federal legislation which called upon the United States government to prefer US-made products in its purchases.

In the modern trade arena many other initiatives besides tariffs have been called protectionist. For example, some commentators, such as Jagdish Bhagwati, see developed countries efforts in imposing their own labor or environmental standards as protectionism. Also, the imposition of restrictive certification procedures on imports are seen in this light.

Further, others point out that free trade agreements often have protectionist provisions such as intellectual property, copyright, and patent restrictions that benefit large corporations. These provisions restrict trade in music, movies, pharmaceuticals, software, and other manufactured items to high cost producers with quotas from low cost producers set to zero.[18]

Other Languages
العربية: حمائية
asturianu: Proteicionismu
azərbaycanca: Proteksionizm
башҡортса: Протекционизм
беларуская: Пратэкцыянізм
беларуская (тарашкевіца)‎: Пратэкцыянізм
български: Протекционизъм
bosanski: Protekcionizam
čeština: Protekcionismus
español: Proteccionismo
Esperanto: Protektismo
français: Protectionnisme
한국어: 보호무역
हिन्दी: संरक्षणवाद
hrvatski: Protekcionizam
Bahasa Indonesia: Proteksionisme
italiano: Protezionismo
latviešu: Protekcionisms
lietuvių: Protekcionizmas
македонски: Протекционизам
Bahasa Melayu: Fahaman perlindungan
Nederlands: Protectionisme
日本語: 保護貿易
norsk nynorsk: Proteksjonisme
oʻzbekcha/ўзбекча: Proteksionizm siyosati
português: Protecionismo
română: Protecționism
Simple English: Protectionism
српски / srpski: Протекционизам
srpskohrvatski / српскохрватски: Protekcionizam
svenska: Protektionism
татарча/tatarça: Ximäyäçelek
Türkçe: Korumacılık
українська: Протекціонізм
Tiếng Việt: Bảo hộ mậu dịch