Economic protectionism

Definition

Economic protectionism is a policy approach that governments use to restrict international trade to protect domestic industries from foreign competition. This can be achieved through measures such as tariffs, import quotas, and subsidies, which are designed to make imported goods more expensive or less accessible than locally produced goods. By limiting competition from abroad, governments aim to bolster their domestic economy, create jobs, and maintain national security.

5 Must Know Facts For Your Next Test

1. Economic protectionism can lead to trade wars when countries retaliate against each other's trade restrictions, escalating tensions in international relations.
2. While protectionism can benefit certain domestic industries in the short term, it often results in higher prices for consumers and reduced selection of goods.
3. Historical examples of economic protectionism include the Smoot-Hawley Tariff Act of 1930 in the United States, which raised tariffs on imports and contributed to the Great Depression.
4. In recent years, major economies like the United States and China have engaged in protectionist measures, impacting global supply chains and international trade dynamics.
5. Critics of economic protectionism argue that it can lead to inefficiencies and stagnation in domestic markets as companies become reliant on government support rather than innovating or improving competitiveness.

Review Questions

• How does economic protectionism impact international trade relations between countries?
  • Economic protectionism impacts international trade relations by creating barriers to trade through tariffs and quotas, which can lead to tensions and retaliation among countries. When one nation imposes restrictions on imports, affected countries may respond with their own protectionist measures, leading to a cycle of trade wars. This not only affects bilateral relations but can also destabilize global trade networks, leading to uncertainty in international markets.
• Evaluate the advantages and disadvantages of economic protectionism for a country's domestic economy.
  • Economic protectionism can offer advantages such as protecting fledgling industries from foreign competition and preserving jobs in certain sectors. However, it also has notable disadvantages including higher consumer prices and limited choices in the marketplace. Additionally, long-term reliance on protectionist policies can hinder innovation and efficiency within domestic industries, making them less competitive globally.
• Assess the role of economic protectionism in shaping modern international conflicts and its implications for global stability.
  • Economic protectionism plays a significant role in shaping modern international conflicts by fostering distrust among nations and leading to escalations like trade wars. The implications for global stability are profound; as countries prioritize their own economic interests over collaborative trade relationships, they risk creating an unstable global economy marked by uncertainty. Furthermore, as seen in recent years, heightened protectionist measures can strain diplomatic ties and disrupt established trading partnerships, further complicating international relations.

Related terms

Tariffs: Taxes imposed on imported goods to make them more expensive than domestic products, aimed at encouraging local consumption.

Import Quotas: Limits set by a government on the quantity of a specific good that can be imported during a given time period to protect local industries.

Subsidies: Financial assistance provided by the government to local businesses to help them compete against foreign imports by lowering their production costs.