What is Trade Protectionism?
Trade protectionism is an economic policy of regulating international trade through tariffs, taxes, and other regulations in order to protect certain domestic industries from foreign competition.Essentially, governments impose these policies to limit imports in an attempt to give domestic producers a competitive advantage over imported foreign goods. In addition to tariffs, governments have other tools available to protect domestic producers. These can include government subsidies, export incentives, as well as quotas and voluntary export restrictions.
Trade protectionism has a long history of being used by nations around the world. The United States, for example, has a long tradition of implementing protective trade policies. During the Great Depression, the Smoot-Hawley Tariff Act of 1930 raised tariffs on many imported products to historically high levels. In the 1980s, President Reagan encouraged Japan to limit their automobile exports to the US. Starting in the 1990s, the United States imposed quotas on steel and softwood lumber imports.
Proponents of trade protectionism argue that it is an effective way to give domestic producers an advantage and boost the economy. They claim that by increasing the cost of imports and shielding domestic producers, governments are successfully protecting their local businesses and helping to create more jobs. In addition, protectionist policies can reduce imports and increase exports, thus helping to reduce a countrys current account deficit and increasing GDP.
On the other hand, opponents of protectionism argue that the benefits are outweighed by the drawbacks. They point to the rising costs of imports, which can raise inflation and reduce disposable household income. Trade protectionism can also lead to economic inefficiencies by creating a distorted price system, where the costs of certain goods and services (namely, imports) are artificially inflated. Moreover, other countries may respond to a nation’s protectionist policies by implementing retaliatory measures, causing a trade war that can have costly consequences for both sides.
In conclusion, trade protectionism is an economic policy of regulating international trade through tariffs, taxes, and other regulations in order to protect certain domestic industries from foreign competition. Proponents of protectionism argue that these policies provide economic benefits and are an effective way to give domestic producers an advantage, while opponents contend that the drawbacks outweigh the advantages. There remains significant debate as to whether protectionism is an effective policy or whether it has serious consequences for global trade.
