Protectionist measures

Definition

Protectionist measures are government policies designed to restrict international trade to protect domestic industries from foreign competition. These measures can include tariffs, quotas, and subsidies, which aim to make imported goods more expensive and less competitive compared to local products. During global financial crises, such measures often emerge as countries seek to shield their economies from external shocks, but they can also lead to trade tensions and retaliatory actions from other nations.

5 Must Know Facts For Your Next Test

1. Protectionist measures often increase during economic downturns as governments prioritize job preservation in local industries.
2. While intended to protect domestic markets, protectionist measures can result in higher prices for consumers and limited choices in the marketplace.
3. Historically, protectionism has been linked to significant global trade conflicts, exemplified by events like the Smoot-Hawley Tariff of 1930 during the Great Depression.
4. Countries employing protectionist measures may face retaliatory tariffs or other trade barriers from affected trading partners, escalating into trade wars.
5. In the context of global financial crises, protectionist measures may hinder economic recovery by reducing international trade flows and cooperation.

Review Questions

• How do protectionist measures influence domestic industries during a global financial crisis?
  • Protectionist measures can significantly influence domestic industries during a global financial crisis by providing them with a temporary shield against foreign competition. By implementing tariffs, quotas, or subsidies, governments aim to support local businesses, preserve jobs, and stabilize the economy. However, while these measures may offer short-term relief, they can also distort market dynamics and lead to inefficiencies in the long run.
• Evaluate the potential consequences of widespread protectionist measures on global trade relationships.
  • Widespread protectionist measures can lead to strained global trade relationships as countries react defensively to safeguard their own economies. This can result in retaliatory actions where affected countries impose their own tariffs or restrictions, escalating into trade wars that disrupt established trading partnerships. Such conflicts can undermine international cooperation and hinder global economic growth, making recovery from financial crises even more challenging.
• Assess the impact of protectionist measures on consumers and international markets in light of historical examples.
  • The impact of protectionist measures on consumers and international markets has historically shown mixed outcomes. While these measures aim to protect domestic jobs and industries, they often result in higher prices for consumers due to reduced competition and limited product availability. An example is the Smoot-Hawley Tariff of 1930, which intended to protect American agriculture but led to retaliatory tariffs by other countries, causing a significant decline in international trade and exacerbating the Great Depression. This illustrates how protectionism can backfire and create more harm than good in both domestic and international contexts.

Related terms

Tariffs: Taxes imposed on imported goods to increase their price and make domestic products more competitive.

Quotas: Limits set by a government on the quantity of a specific product that can be imported during a given timeframe.

Subsidies: Financial support provided by the government to local businesses or industries to help them compete against foreign imports.