Protectionism

Definition

Protectionism is an economic policy that restricts international trade through the use of tariffs, quotas, subsidies, or other government regulations in order to protect domestic industries and jobs from foreign competition.

5 Must Know Facts For Your Next Test

1. Protectionism is often implemented to safeguard domestic industries and jobs from foreign competition, particularly in industries considered strategically important or vulnerable.
2. Proponents of protectionism argue that it helps maintain employment levels, supports domestic industries, and promotes national security by reducing dependence on foreign suppliers.
3. Critics of protectionism argue that it can lead to retaliatory actions by trading partners, resulting in a trade war, and ultimately higher prices and reduced consumer choice.
4. Protectionism can distort market forces, leading to inefficient allocation of resources and a loss of overall economic welfare.
5. The World Trade Organization (WTO) has rules and agreements that generally discourage the use of protectionist measures, with some exceptions for developing countries or in specific circumstances.

Review Questions

• Explain how protectionism aims to protect domestic industries and jobs from foreign competition.
  • Protectionism is an economic policy that uses various trade barriers, such as tariffs, quotas, and subsidies, to make imported goods less competitive compared to domestic products. The goal is to shield domestic industries and workers from foreign competition, preserving employment and market share for local producers. Proponents argue that protectionism helps maintain a strong domestic industrial base and promotes national economic security.
• Discuss the potential consequences of protectionist policies on the global economy.
  • Protectionist policies can have far-reaching consequences on the global economy. They can lead to retaliatory actions by trading partners, resulting in a trade war that disrupts international trade flows and supply chains. This can ultimately lead to higher prices for consumers, reduced choice, and a loss of overall economic welfare as resources are allocated inefficiently. Critics argue that protectionism distorts market forces and undermines the benefits of specialization and comparative advantage that drive global trade and economic growth.
• Evaluate the role of international trade agreements, such as those overseen by the World Trade Organization (WTO), in regulating the use of protectionist measures.
  • The World Trade Organization (WTO) and its agreements aim to promote free and fair trade by generally discouraging the use of protectionist measures. However, the WTO does allow for some exceptions, such as permitting developing countries to use certain trade barriers to protect their infant industries or in specific circumstances, like national security concerns. The WTO's rules and dispute settlement mechanism help to regulate the use of protectionist policies and prevent the outbreak of trade wars, which can have significant negative consequences for the global economy. Ultimately, the WTO plays a crucial role in balancing the interests of domestic industries with the benefits of open and integrated global markets.

Related terms

Tariffs:

A tax or duty imposed on imported goods, making them more expensive and less competitive compared to domestic products.

Quotas:

Limits on the quantity or volume of specific goods that can be imported, often used to protect domestic industries.

Subsidies: Financial assistance provided by the government to domestic producers, allowing them to sell their goods at lower prices than foreign competitors.