Globalisation

What is Protectionism?

Protectionism is the use of government policies to restrict imports and shield domestic industries from foreign competition. It is the opposite of free trade. Governments adopt protectionist measures for a range of economic, strategic, and political reasons.

Methods of Protectionism

• Tariffs — taxes on imported goods. They raise the price of imports for domestic consumers, making domestically produced goods relatively cheaper and reducing import volumes. They also generate revenue for the government. Example: the UK imposes tariffs on certain goods from outside the UK Global Tariff schedule.
• Quotas — quantitative limits on the volume of imports allowed. Unlike tariffs, they directly cap the quantity of imports regardless of price. They protect domestic producers from unlimited foreign competition.
• Subsidies to domestic producers — government payments that reduce domestic firms' costs, enabling them to compete with cheaper foreign imports. Example: agricultural subsidies in the EU and US. Not a direct restriction on imports, but achieves similar protective effect by making domestic production more competitive.
• Regulations and standards — imposing strict product standards, safety requirements, or administrative procedures that foreign producers find costly or difficult to meet — acting as non-tariff barriers to trade. Example: requiring specific labelling formats, phytosanitary standards for food imports.
• Exchange rate manipulation — deliberately keeping a currency undervalued makes exports cheaper and imports more expensive, functioning as a de facto protectionist measure.

Arguments For Protectionism

• Infant industry argument — new industries in developing countries may not yet be efficient enough to compete globally. Temporary protection allows them to grow, achieve economies of scale, and become competitive before trade barriers are removed.
• Protecting jobs — restricting imports from low-wage countries prevents domestic job losses in vulnerable industries, preserving communities dependent on those sectors.
• National security / strategic industries — some industries (defence, food production, energy, semiconductors) are too important to be left entirely to global markets. Domestic capacity must be maintained even if it is costly.
• Correcting unfair trade — other countries may subsidise their industries or use currency manipulation, creating unfair competition. Retaliatory tariffs or anti-dumping measures may be justified.
• Reducing current account deficit — restricting imports may improve the trade balance.

Arguments Against Protectionism

• Higher prices for consumers — tariffs and quotas raise import prices, reducing consumer welfare.
• Less competition → less efficiency — domestic firms sheltered from competition may become complacent and inefficient.
• Retaliation — trading partners typically respond with their own tariffs, reducing export markets for domestic firms (trade wars harm all sides).
• Misallocation of resources — protecting uncompetitive industries prevents resources moving to more productive uses.
• Contradicts comparative advantage gains — reduces global specialisation and lowers world output.