Protective tariffs

Definition

Protective tariffs are taxes imposed by a government on imported goods to raise their prices, making domestically produced goods more competitive in the market. These tariffs aim to shield local industries from foreign competition, encouraging domestic production and preserving jobs. The concept of protective tariffs is closely linked to economic nationalism and has played a significant role in the development of various economic theories and policies throughout history.

5 Must Know Facts For Your Next Test

1. Protective tariffs were widely adopted in the 19th century as a means to promote industrialization, particularly in countries like Germany and the United States.
2. The German Historical School emphasized the importance of protective tariffs in nurturing infant industries, arguing that temporary protection could lead to long-term economic growth.
3. Protective tariffs can lead to trade wars, as countries retaliate against each other's tariff policies, impacting international trade relations.
4. The impact of protective tariffs on consumers can be negative, as they often lead to higher prices for imported goods and limited choices in the market.
5. While protective tariffs aim to protect domestic industries, they can also result in inefficiencies and lack of innovation within those industries due to reduced competition.

Review Questions

• How do protective tariffs align with the principles of the German Historical School in terms of economic development?
  • Protective tariffs align with the German Historical School's principles by supporting the idea that emerging industries need temporary protection from foreign competition to develop. This school of thought argues that such measures are essential for fostering domestic production and innovation, allowing new industries to gain a foothold in the market before competing on equal terms with established foreign companies. By advocating for protective tariffs, the German Historical School highlights the significance of state intervention in promoting economic growth.
• Evaluate the potential economic consequences of implementing protective tariffs on both local industries and consumers.
  • Implementing protective tariffs can bolster local industries by increasing their competitiveness against imports, leading to job preservation and potential growth within these sectors. However, this protection can come at a cost to consumers, who may face higher prices for goods and fewer choices in the market. Additionally, while local industries may benefit in the short term, prolonged protection can create inefficiencies and discourage innovation, ultimately affecting overall economic health.
• Critically analyze how protective tariffs reflect broader economic ideologies and their impact on international trade relations.
  • Protective tariffs reflect broader economic ideologies like mercantilism and economic nationalism, which prioritize domestic interests over free trade principles. By imposing tariffs, governments seek to safeguard local industries, but this can lead to strained international trade relations as countries retaliate with their own tariff measures. Such actions can escalate into trade wars that disrupt global supply chains and alter the dynamics of international commerce, highlighting the delicate balance between protecting national interests and maintaining cooperative global trade relations.

Related terms

Free Trade: An economic policy that allows goods and services to be traded across international borders without tariffs or other restrictions.

Mercantilism: An economic theory that emphasizes the role of government in promoting national wealth through protectionist measures and the accumulation of capital.

Import Quotas: Restrictions set by a government on the quantity of a particular good that can be imported into the country during a specified period.