![Free Trade and Protection](https://upload.wikimedia.org/wikipedia/commons/4/46/Free_Trade_and_Protection.jpg)
Protectionism, sometimes referred to as trade protectionism, is the
economic policy
The economy of governments covers the systems for setting levels of taxation, government budgets, the money supply and interest rates as well as the labour market, national ownership, and many other areas of government interventions into the e ...
of restricting imports from other countries through methods such as
tariff
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and poli ...
s on imported goods,
import quota
An import quota is a type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time.
Quotas, like other trade restrictions, are typically used to benefit the producers o ...
s, and a variety of other government regulations. Proponents argue that protectionist policies shield the producers, businesses, and workers of the
import-competing sector in the country from foreign competitors. Opponents argue that protectionist policies reduce
trade
Trade involves the transfer of goods and services from one person or entity to another, often in exchange for money. Economists refer to a system or network that allows trade as a market.
An early form of trade, barter, saw the direct excha ...
and adversely affect consumers in general (by raising the cost of imported goods) as well as the producers and workers in export sectors, both in the country implementing protectionist policies and in the countries protected against.
Protectionism is advocated mainly by parties that hold
economic nationalist
Economic nationalism, also called economic patriotism and economic populism, is an ideology that favors state interventionism over other market mechanisms, with policies such as domestic control of the economy, labor, and capital formation, incl ...
or
left-wing
Left-wing politics describes the range of political ideologies that support and seek to achieve social equality and egalitarianism, often in opposition to social hierarchy. Left-wing politics typically involve a concern for those in soci ...
positions, while economically
right-wing
Right-wing politics describes the range of political ideologies that view certain social orders and hierarchies as inevitable, natural, normal, or desirable, typically supporting this position on the basis of natural law, economics, authorit ...
political parties generally support
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...
.
There is a consensus among economists that protectionism has a negative effect on economic growth and economic welfare,
while free trade and the reduction of
trade barrier
Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency.
Most trade barriers work o ...
s have a significantly positive effect on
economic growth
Economic growth can be defined as the increase or improvement in the inflation-adjusted market value of the goods and services produced by an economy in a financial year. Statisticians conventionally measure such growth as the percent rate of ...
.
[ Mankiw, N. Gregory (24 April 2015)]
"Economists Actually Agree on This: The Wisdom of Free Trade"
''The New York Times''. Retrieved 10 August 2021. "Economists are famous for disagreeing with one another.... But economists reach near unanimity on some topics, including international trade." Some scholars, such as
Douglas Irwin
Douglas A. Irwin is the John Sloan Dickey Third Century Professor in the Social Sciences in the Economics Department at Dartmouth College and the author of seven books. He is an expert on both past and present U.S. trade policy, especially policy d ...
, have implicated protectionism as the cause of some economic crises, most notably the
Great Depression
The Great Depression (19291939) was an economic shock that impacted most countries across the world. It was a period of economic depression that became evident after a major fall in stock prices in the United States. The economic contagio ...
. Although
trade liberalization
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econ ...
can sometimes result in large and unequally distributed losses and gains, and can, in the
short run In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints a ...
, cause significant economic dislocation of workers in import-competing sectors, free trade has advantages of lowering costs of goods and services for both producers and consumers.
Protectionist policies
![Emblem of the Ligue Nationale pour la Défense du Franc](https://upload.wikimedia.org/wikipedia/commons/5/5b/Emblem_of_the_Ligue_Nationale_pour_la_D%C3%A9fense_du_Franc.svg)
A variety of policies have been used to achieve protectionist goals. These include:
*
Tariff
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and poli ...
s and
import quota
An import quota is a type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time.
Quotas, like other trade restrictions, are typically used to benefit the producers o ...
s are the most common types of protectionist policies.
[Paul Krugman, Robin Wells & Martha L. Olney, ''Essentials of Economics'' (Worth Publishers, 2007), p. 342-45.] A tariff is an
excise tax
file:Lincoln Beer Stamp 1871.JPG, upright=1.2, 1871 U.S. Revenue stamp for 1/6 barrel of beer. Brewers would receive the stamp sheets, cut them into individual stamps, cancel them, and paste them over the Bunghole, bung of the beer barrel so when ...
levied on imported goods. Originally imposed to raise government revenue, modern tariffs are now more often designed to protect domestic producers that compete with foreign importers. An import quota is a limit on the volume of a good that may be legally imported, usually established through an import licensing regime.
* Protection of technologies, patents, technical and scientific knowledge
* Restrictions on
foreign direct investment
A foreign direct investment (FDI) is an investment in the form of a controlling ownership in a business in one country by an entity based in another country. It is thus distinguished from a foreign portfolio investment by a notion of direct co ...
, such as restrictions on the acquisition of domestic firms by foreign investors.
* Administrative barriers: Countries are sometimes accused of using their various administrative rules (e.g. regarding
food safety
Food safety (or food hygiene) is used as a scientific method/discipline describing handling, preparation, and storage of food in ways that prevent food-borne illness. The occurrence of two or more cases of a similar illness resulting from t ...
, environmental standards, electrical safety, etc.) as a way to introduce barriers to imports.
*
Anti-dumping legislation: "
Dumping" is the practice of firms selling to export markets at lower prices than are charged in domestic markets. Supporters of anti-dumping laws argue that they prevent the import of cheaper foreign goods that would cause local firms to close down. However, in practice, anti-dumping laws are usually used to impose trade tariffs on foreign exporters.
* Direct
subsidies
A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...
: Government subsidies (in the form of lump-sum payments or cheap loans) are sometimes given to local firms that cannot compete well against imports. These subsidies are purported to "protect" local jobs and to help local firms adjust to the world markets.
* Export
subsidies
A subsidy or government incentive is a form of financial aid or support extended to an economic sector (business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from the government, the ter ...
: Export subsidies are often used by governments to increase exports. Export subsidies have the opposite effect of export tariffs because exporters get payment, which is a percentage or proportion of the value of exported. Export subsidies increase the amount of trade, and in a country with floating exchange rates, have effects similar to import subsidies.
*
Exchange rate
In finance, an exchange rate is the rate at which one currency will be exchanged for another currency. Currencies are most commonly national currencies, but may be sub-national as in the case of Hong Kong or supra-national as in the case of ...
control: A government may
intervene in the foreign exchange market to lower the value of its currency by selling its currency in the foreign exchange market. Doing so will raise the cost of imports and lower the cost of exports, leading to an improvement in its
trade balance
The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
. However, such a policy is only effective in the short run, as it will lead to higher
inflation
In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reductio ...
in the country in the long run, which will, in turn, raise the real cost of exports, and reduce the relative price of imports.
* International
patent
A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention."A p ...
systems: There is an argument for viewing national patent systems as a cloak for protectionist trade policies at a national level. Two strands of this argument exist: one when patents held by one country form part of a system of exploitable relative advantage in trade negotiations against another, and a second where adhering to a worldwide system of patents confers "good citizenship" status despite 'de facto protectionism'.
Peter Drahos Professor Peter Drahos is an Australian academic and researcher specializing in the areas of intellectual property and global business regulation amongst others. He is the Director of the Centre for Governance of Knowledge and Development and was fo ...
explains that "States realized that patent systems could be used to cloak protectionist strategies. There were also reputational advantages for states to be seen to be sticking to intellectual property systems. One could attend the various revisions of the Paris and
Berne conventions, participate in the cosmopolitan moral dialogue about the need to protect the fruits of authorial labor and inventive genius...knowing all the while that one's domestic intellectual property system was a handy protectionist weapon."
* Political campaigns advocating domestic consumption (e.g. the "Buy American" campaign in the United States, which could be seen as an extra-legal promotion of protectionism.)
* Preferential governmental spending, such as the
Buy American Act
The Buy American Act ("BAA", originally , now ) passed in 1933 by Congress and signed by President Hoover on his last full day in office (March 3, 1933), required the United States government to prefer U.S.-made products in its purchases. Other p ...
, federal legislation which called upon the United States government to prefer US-made products in its purchases.
In the modern trade arena, many other initiatives besides tariffs have been called protectionist. For example, some commentators, such as
Jagdish Bhagwati
Jagdish Natwarlal Bhagwati (born July 26, 1934) is an Indian-born naturalized American economist and one of the most influential trade theorists of his generation.
He is a University Professor of economics and law at Columbia University and a Sen ...
, see developed countries' efforts in imposing their own labor or environmental standards as protectionism. Also, the imposition of restrictive certification procedures on imports is seen in this light.
Further, others point out that free trade agreements often have protectionist provisions such as intellectual property,
copyright
A copyright is a type of intellectual property that gives its owner the exclusive right to copy, distribute, adapt, display, and perform a creative work, usually for a limited time. The creative work may be in a literary, artistic, education ...
, and patent restrictions that benefit large corporations. These provisions restrict trade in music, movies, pharmaceuticals, software, and other manufactured items to high-cost producers with quotas from low-cost producers set to zero.
History
![Tariff Rates in Spain and Italy (1860-1910)](https://upload.wikimedia.org/wikipedia/commons/7/7b/Tariff_Rates_in_Spain_and_Italy_%281860-1910%29.gif)
Historically, protectionism was associated with economic theories such as
mercantilism
Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce a ...
(which focused on achieving positive
trade balance
The balance of trade, commercial balance, or net exports (sometimes symbolized as NX), is the difference between the monetary value of a nation's exports and imports over a certain time period. Sometimes a distinction is made between a balance ...
and accumulating gold), and
import substitution
Import substitution industrialization (ISI) is a trade and economic policy that advocates replacing foreign imports with domestic production.''A Comprehensive Dictionary of Economics'' p.88, ed. Nelson Brian 2009. It is based on the premise tha ...
.
In the 18th century,
Adam Smith
Adam Smith (baptized 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the thinking of political economy and key figure during the Scottish Enlightenment. Seen by some as "The Father of Economics"——— ...
famously warned against the "interested sophistry" of industry, seeking to gain an advantage at the cost of the consumers.
[ Free to Choose, Milton Friedman] Friedrich List
Georg Friedrich List (6 August 1789 – 30 November 1846) was a German-American economist who developed the "National System" of political economy. He was a forefather of the German historical school of economics, and argued for the German Customs ...
saw Adam Smith's views on
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...
as disingenuous, believing that Smith advocated for free trade so that British industry could lock out underdeveloped foreign competition.
Some have argued that no major country has ever successfully industrialized without some form of economic protection.
Economic historian
Paul Bairoch
Paul Bairoch (24 July 1930 in Antwerp – 12 February 1999 in Geneva) was a (in 1985 naturalised) Swiss economic historian of Belgian descent who specialized in urban history and historical demography. He published or co-authored more than two d ...
wrote that "historically, free trade is the exception and protectionism the rule".
According to economic historians Douglas Irwin and Kevin O'Rourke, "shocks that emanate from brief financial crises tend to be transitory and have a little long-run effect on trade policy, whereas those that play out over longer periods (the early 1890s, early 1930s) may give rise to protectionism that is difficult to reverse. Regional wars also produce transitory shocks that have little impact on long-run trade policy, while global wars give rise to extensive government trade restrictions that can be difficult to reverse."
One paper notes that sudden shifts in comparative advantage for specific countries have led some countries to become protectionist: "The shift in comparative advantage associated with the opening up of New World frontiers, and the subsequent “grain invasion” of Europe, led to higher agricultural tariffs from the late 1870s onwards, which as we have seen reversed the move toward freer trade that had characterized mid-nineteenth-century Europe. In the decades after World War II, Japan's rapid rise led to trade friction with other countries. Japan's recovery was accompanied by a sharp increase in its exports of certain product categories: cotton textiles in the 1950s, steel in the 1960s, automobiles in the 1970s, and electronics in the 1980s. In each case, the rapid expansion in Japan's exports created difficulties for its trading partners and the use of protectionism as a shock absorber."
In the United States
![U](https://upload.wikimedia.org/wikipedia/commons/6/65/U.S_Trade_Balance_%281895-2015%29.png)
According to economic historian Douglas Irwin, a common myth about US trade policy is that low tariffs harmed American manufacturers in the early 19th century and then that high tariffs made the United States into a great industrial power in the late 19th century.
A review by ''The Economist'' of Irwin's 2017 book ''Clashing over Commerce: A History of US Trade Policy'' states:
Political dynamics would lead people to see a link between tariffs and the economic cycle that was not there. A boom would generate enough revenue for tariffs to fall, and when the bust came pressure would build to raise them again. By the time that happened, the economy would be recovering, giving the impression that tariff cuts caused the crash and the reverse generated the recovery. 'Mr. Irwin' also attempts to debunk the idea that protectionism made America a great industrial power, a notion believed by some to offer lessons for developing countries today. As its share of global manufacturing powered from 23% in 1870 to 36% in 1913, the admittedly high tariffs of the time came with a cost, estimated at around 0.5% of GDP in the mid-1870s. In some industries, they might have sped up development by a few years. But American growth during its protectionist period was more to do with its abundant resources and openness to people and ideas.
According to Irwin, tariffs have serve three primary purposes in the United States: "to raise revenue for the government, to restrict imports and protect domestic producers from foreign competition, and to reach reciprocity agreements that reduce trade barriers."
From 1790 to 1860, average tariffs increased from 20 percent to 60 percent before declining again to 20 percent.
From 1861 to 1933, which Irwin characterizes as the "restriction period", the average tariffs increased to 50 percent and remained at that level for several decades. From 1934 onwards, which Irwin characterizes as the "reciprocity period", the average tariff declined substantially until it leveled off at 5 percent.
Economist
Paul Bairoch
Paul Bairoch (24 July 1930 in Antwerp – 12 February 1999 in Geneva) was a (in 1985 naturalised) Swiss economic historian of Belgian descent who specialized in urban history and historical demography. He published or co-authored more than two d ...
documented that the United States imposed among the highest rates in the world from around the founding of the country until the World War II period, describing the United States as "the mother country and bastion of modern protectionism" since the end of the 18th century and until the post-World War II period.
Alexander Hamilton
Alexander Hamilton (January 11, 1755 or 1757July 12, 1804) was an American military officer, statesman, and Founding Father who served as the first United States secretary of the treasury from 1789 to 1795.
Born out of wedlock in Charlest ...
, the first
United States Secretary of the Treasury
The United States secretary of the treasury is the head of the United States Department of the Treasury, and is the chief financial officer of the federal government of the United States. The secretary of the treasury serves as the principal a ...
, was of the view, as articulated most famously in his "
Report on Manufactures
The Report on the Subject of Manufactures, generally referred to by its shortened title Report on Manufactures, is the third major report, and ''magnum opus'', of American Founding Father and first United States Treasury Secretary Alexander Hami ...
", that developing an
industrialized economy
In sociology, industrial society is a society driven by the use of technology and machinery to enable mass production, supporting a population growth, large population with a high capacity for division of labour. Such a structure developed in the ...
was impossible without protectionism because import duties are necessary to shelter domestic "
infant industries
The infant industry argument is an economic rationale for trade protectionism. The core of the argument is that nascent industries often do not have the economies of scale that their older competitors from other countries may have, and thus nee ...
" until they could achieve
economies of scale
In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time. A decrease in cost per unit of output enables ...
. The industrial takeoff of the United States occurred under protectionist policies 1816–1848 and under moderate protectionism 1846–1861, and continued under strict protectionist policies 1861–1945. In the late 19th century, higher tariffs were introduced on the grounds that they were needed to protect American wages and to protect American farmers. Between 1824 and the 1940s, the U.S. imposed much higher average tariff rates on manufactured products than did Britain or any other European country, with the exception for a period of time of Spain and Russia. Up until the end of World War II, the United States had the most protectionist economy on Earth.
The Bush administration implemented
tariffs on Chinese steel in 2002; according to a 2005 review of existing research on the tariff, all studies found that the tariffs caused more harm than gains to the US economy and employment. The Obama administration implemented tariffs on Chinese tires between 2009 and 2012 as an
anti-dumping measure; a 2016 study found that these tariffs had no impact on employment and wages in the US tire industry.
In 2018, EU Trade Commissioner
Cecilia Malmström stated that the US was "playing a dangerous game" in applying tariffs on steel and aluminum imports from most countries, and stated that she saw the Trump administration's decision to do so as both "pure protectionist" and "illegal".
The tariffs imposed by the
Trump administration
Donald Trump's tenure as the List of presidents of the United States, 45th president of the United States began with Inauguration of Donald Trump, his inauguration on January 20, 2017, and ended on January 20, 2021. Trump, a Republican Party ...
during the
China-United States trade war led to a minor reduction in the United States trade deficit with China.
In Europe
Europe became increasingly protectionist during the eighteenth century.
Economic historians Findlay and O'Rourke write that in "the immediate aftermath of the Napoleonic Wars, European trade policies were almost universally protectionist," with the exceptions being smaller countries such as the Netherlands and Denmark.
Europe increasingly liberalized its trade during the 19th century.
Countries such as Britain, the Netherlands, Denmark, Portugal and Switzerland, and arguably Sweden and Belgium, had fully moved towards free trade prior to 1860.
Economic historians see the repeal of the
Corn Laws
The Corn Laws were tariffs and other trade restrictions on imported food and corn enforced in the United Kingdom between 1815 and 1846. The word ''corn'' in British English denotes all cereal grains, including wheat, oats and barley. They were ...
in 1846 as the decisive shift toward free trade in Britain.
A 1990 study by the Harvard economic historian
Jeffrey Williamson
Jeffrey Gale Williamson (born 1935) is the ''Laird Bell'' Professor of Economics (Emeritus), Harvard University; an Honorary Fellow in the Department of Economics at the University of Wisconsin (Madison); Research Associate at the National Bureau ...
showed that the Corn Laws (which imposed restrictions and
tariffs
A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and polic ...
on imported
grain
A grain is a small, hard, dry fruit (caryopsis) – with or without an attached hull layer – harvested for human or animal consumption. A grain crop is a grain-producing plant. The two main types of commercial grain crops are cereals and legum ...
) substantially increased the cost of living for British workers, and hampered the British manufacturing sector by reducing the disposable incomes that British workers could have spent on manufactured goods. The shift towards liberalization in Britain occurred in part due to "the influence of economists like David Ricardo", but also due to "the growing power of urban interests".
Findlay and O'Rourke characterize 1860
Cobden Chevalier treaty between France and the United Kingdom as "a decisive shift toward European free trade."
This treaty was followed by numerous free trade agreements: "France and Belgium signed a treaty in 1861; a Franco-Prussian treaty was signed in 1862; Italy entered the “network of Cobden-Chevalier treaties” in 1863 (Bairoch 1989, 40); Switzerland in 1864; Sweden, Norway, Spain, the Netherlands, and the Hanseatic towns in 1865; and Austria in 1866. By 1877, less than two decades after the Cobden Chevalier treaty and three decades after British Repeal, Germany “had virtually become a free trade country” (Bairoch, 41). Average duties on manufactured products had declined to 9–12% on the Continent, a far cry from the 50% British tariffs, and numerous prohibitions elsewhere, of the immediate post-Waterloo era (Bairoch, table 3, p. 6, and table 5, p. 42)."
Some European powers did not liberalize during the 19th century, such as the Russian Empire and Austro-Hungarian Empire which remained highly protectionist. The
Ottoman Empire
The Ottoman Empire, * ; is an archaic version. The definite article forms and were synonymous * and el, Оθωμανική Αυτοκρατορία, Othōmanikē Avtokratoria, label=none * info page on book at Martin Luther University) ...
also became increasingly protectionist. In the Ottoman Empire's case, however, it previously had
liberal
Liberal or liberalism may refer to:
Politics
* a supporter of liberalism
** Liberalism by country
* an adherent of a Liberal Party
* Liberalism (international relations)
* Sexually liberal feminism
* Social liberalism
Arts, entertainment and m ...
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...
policies during the 18th to early 19th centuries, which
British prime minister
The prime minister of the United Kingdom is the head of government of the United Kingdom. The prime minister advises the sovereign on the exercise of much of the royal prerogative, chairs the Cabinet and selects its ministers. As moder ...
Benjamin Disraeli
Benjamin Disraeli, 1st Earl of Beaconsfield, (21 December 1804 – 19 April 1881) was a British statesman and Conservative politician who twice served as Prime Minister of the United Kingdom. He played a central role in the creation o ...
cited as "an instance of the injury done by unrestrained competition" in the 1846
Corn Laws
The Corn Laws were tariffs and other trade restrictions on imported food and corn enforced in the United Kingdom between 1815 and 1846. The word ''corn'' in British English denotes all cereal grains, including wheat, oats and barley. They were ...
debate, arguing that it destroyed what had been "some of the finest manufacturers of the world" in 1812.
The countries of Western Europe began to steadily liberalize their economies after World War II and the protectionism of the interwar period.
In Canada
Since 1971 Canada has protected producers of eggs, milk, cheese, chicken, and turkey with a system of
supply management. Though prices for these foods in Canada exceed global prices, the farmers and processors have had the security of a stable market to finance their operations. Doubts about the safety of
bovine growth hormone
Bovine somatotropin or bovine somatotrophin (abbreviated bST and BST), or bovine growth hormone (BGH), is a peptide hormone produced by cows' pituitary glands.
Like other hormones, it is produced in small quantities and is used in regulating m ...
, sometimes used to boost dairy production, led to hearings before the
Senate of Canada
The Senate of Canada (french: region=CA, Sénat du Canada) is the upper house of the Parliament of Canada. Together with the Crown and the House of Commons, they comprise the bicameral legislature of Canada.
The Senate is modelled after the B ...
, resulting in a ban in Canada. Thus supply management of milk products is
consumer protection
Consumer protection is the practice of safeguarding buyers of goods and services, and the public, against unfair practices in the marketplace. Consumer protection measures are often established by law. Such laws are intended to prevent business ...
of Canadians.
In
Quebec
Quebec ( ; )According to the Canadian government, ''Québec'' (with the acute accent) is the official name in Canadian French and ''Quebec'' (without the accent) is the province's official name in Canadian English is one of the thirtee ...
, the
Federation of Quebec Maple Syrup Producers
The Federation of Quebec Maple Syrup Producers (french: Fédération des producteurs acéricoles du Québec, FPAQ) is a government-sanctioned private organization that regulates the production and marketing of maple syrup in Quebec. As of 2011, ...
manages the supply of
maple syrup
Maple syrup is a syrup made from the sap of maple trees. In cold climates, these trees store starch in their trunks and roots before winter; the starch is then converted to sugar that rises in the sap in late winter and early spring. Maple tree ...
.
In Latin America
Most Latin American Countries became independent in the early 19th century. They revolted against their colonizers (primarily Spain, France, and Portugal) and set off on their own.
Following the achievement of their independence, most of the Latin American countries adopted protectionism. They both feared that any foreign competition would stomp out their newly created state and figured that lack of outside resources would drive domestic production.
Another reason for protectionism was that Latin America was frequently attacked by outsiders. Spain, the United States of America, France, and Texas had all invaded or attempted to invade Latin America by the year 1880. It could be said that Latin America was essentially hiding in its shell trying just to survive in the 19th century.
Yet the protectionist behavior continued up until and during the World Wars. No Latin American countries got seriously involved with either side. Rather, they just kept harvesting their crops (mostly fruits, tobacco, and sugar) and increasing their exports under an ever-growing tariff rate. During World War 2, Latin America had, on average, the highest tariffs in the world.
There was a slight decrease in Latin American tariffs after World War 2, when Asia started to become very protectionist in order to rebuild yet the Latin Americans were still there. To this day, there are countries that only trade freely with other Latin American countries.
Impact
There is a broad consensus among economists that protectionism has a negative effect on economic growth and economic welfare, while
free trade
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...
and the reduction of
trade barrier
Trade barriers are government-induced restrictions on international trade. According to the theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency.
Most trade barriers work o ...
s has a positive effect on economic growth.
[See P. Krugman, "The Narrow and Broad Arguments for Free Trade", ''American Economic Review, Papers and Proceedings'', 83(3), 1993 ; and P. Krugman, ''Peddling Prosperity: Economic Sense and Nonsense in the Age of Diminished Expectations'', New York, W.W. Norton & Company, 1994.]
Protectionism is frequently criticized by economists as harming the people it is meant to help. Mainstream
economist
An economist is a professional and practitioner in the social sciences, social science discipline of economics.
The individual may also study, develop, and apply theories and concepts from economics and write about economic policy. Within this ...
s instead support free trade.
The principle of
comparative advantage
In an economic model, agents have a comparative advantage over others in producing a particular good if they can produce that good at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior to trade. Comp ...
shows that the gains from free trade outweigh any losses as free trade creates more jobs than it destroys because it allows countries to specialize in the production of goods and services in which they have a comparative advantage. Protectionism results in
deadweight loss
In economics, deadweight loss is the difference in production and consumption of any given product or service including government tax. The presence of deadweight loss is most commonly identified when the quantity produced ''relative'' to the amoun ...
; this loss to overall welfare gives no-one any benefit, unlike in a free market, where there is no such total loss. According to economist Stephen P. Magee, the benefits of free trade outweigh the losses by as much as 100 to 1.
Living standards
A 2016 study found that "trade typically favors the poor", as they spend a greater share of their earnings on goods, as free trade reduces the costs of goods. Other research found that China's entry to the WTO benefitted US consumers, as the price of Chinese goods were substantially reduced. Harvard economist
Dani Rodrik
Dani Rodrik (born August 14, 1957) is a Turkish economist and Ford Foundation Professor of International Political Economy at the John F. Kennedy School of Government at Harvard University. He was formerly the Albert O. Hirschman Professor of th ...
argues that while globalization and free trade does contribute to social problems, "a serious retreat into protectionism would hurt the many groups that benefit from trade and would result in the same kind of social conflicts that globalization itself generates. We have to recognize that erecting trade barriers will help in only a limited set of circumstances and that trade policy will rarely be the best response to the problems
f globalization.
Growth
According to economic historians Findlay and O'Rourke, there is a consensus in the economics literature that protectionist policies in the interwar period "hurt the world economy overall, although there is a debate about whether the effect was large or small."
Economic historian
Paul Bairoch
Paul Bairoch (24 July 1930 in Antwerp – 12 February 1999 in Geneva) was a (in 1985 naturalised) Swiss economic historian of Belgian descent who specialized in urban history and historical demography. He published or co-authored more than two d ...
argued that economic protection was positively correlated with economic and industrial growth during the 19th century. For example,
GNP
The gross national income (GNI), previously known as gross national product (GNP), is the total domestic and foreign output claimed by residents of a country, consisting of gross domestic product (GDP), plus factor incomes earned by foreign ...
growth during Europe's "liberal period" in the middle of the century (where tariffs were at their lowest), averaged 1.7% per year, while industrial growth averaged 1.8% per year. However, during the protectionist era of the 1870s and 1890s, GNP growth averaged 2.6% per year, while industrial output grew at 3.8% per year, roughly twice as fast as it had during the liberal era of low tariffs and free trade. One study found that tariffs imposed on manufactured goods increase economic growth in developing countries, and this growth impact remains even after the tariffs are repealed.
According to Dartmouth economist
Douglas Irwin
Douglas A. Irwin is the John Sloan Dickey Third Century Professor in the Social Sciences in the Economics Department at Dartmouth College and the author of seven books. He is an expert on both past and present U.S. trade policy, especially policy d ...
, "that there is a correlation between high tariffs and growth in the late nineteenth century cannot be denied. But correlation is not causation... there is no reason for necessarily thinking that import protection was a good policy just because the economic outcome was good: the outcome could have been driven by factors completely unrelated to the tariff, or perhaps could have been even better in the absence of protection."
Irwin furthermore writes that "few observers have argued outright that the high tariffs caused such growth."
According to Oxford economic historian Kevin O'Rourke, "It seems clear that protection was important for the growth of US manufacturing in the first half of the 19th century; but this does not necessarily imply that the tariff was beneficial for GDP growth. Protectionists have often pointed to German and American industrialization during this period as evidence in favor of their position, but economic growth is influenced by many factors other than trade policy, and it is important to control for these when assessing the links between tariffs and growth."
A prominent 1999 study by Jeffrey A. Frankel and David H. Romer found, contrary to free trade skeptics' claims, while controlling for relevant factors, that trade does indeed have a positive impact on growth and incomes.
Developing world
There is broad consensus among economists that free trade helps workers in developing countries, even though they are not subject to the stringent health and labor standards of developed countries. This is because "the growth of manufacturing—and of the myriad other jobs that the new export sector creates—has a ripple effect throughout the economy" that creates competition among producers, lifting wages and living conditions. The Nobel laureates,
Milton Friedman
Milton Friedman (; July 31, 1912 – November 16, 2006) was an American economist and statistician who received the 1976 Nobel Memorial Prize in Economic Sciences for his research on consumption analysis, monetary history and theory and the ...
and
Paul Krugman
Paul Robin Krugman ( ; born February 28, 1953) is an American economist, who is Distinguished Professor of Economics at the Graduate Center of the City University of New York, and a columnist for ''The New York Times''. In 2008, Krugman was th ...
, have argued for free trade as a model for
economic development
In the economics study of the public sector, economic and social development is the process by which the economic well-being and quality of life of a nation, region, local community, or an individual are improved according to targeted goals and o ...
.
Alan Greenspan
Alan Greenspan (born March 6, 1926) is an American economist who served as the 13th chairman of the Federal Reserve from 1987 to 2006. He works as a private adviser and provides consulting for firms through his company, Greenspan Associates LLC. ...
, former chair of the American
Federal Reserve
The Federal Reserve System (often shortened to the Federal Reserve, or simply the Fed) is the central banking system of the United States of America. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a ...
, has criticized protectionist proposals as leading "to an atrophy of our competitive ability. ... If the protectionist route is followed, newer, more efficient industries will have less scope to expand, and overall output and economic welfare will suffer."
Protectionists postulate that new industries may require protection from entrenched foreign competition in order to develop. This was
Alexander Hamilton
Alexander Hamilton (January 11, 1755 or 1757July 12, 1804) was an American military officer, statesman, and Founding Father who served as the first United States secretary of the treasury from 1789 to 1795.
Born out of wedlock in Charlest ...
's argument in his "
Report on Manufactures
The Report on the Subject of Manufactures, generally referred to by its shortened title Report on Manufactures, is the third major report, and ''magnum opus'', of American Founding Father and first United States Treasury Secretary Alexander Hami ...
", and the primary reason why George Washington signed the
Tariff Act of 1789. Mainstream economists do concede that tariffs can in the short-term help domestic industries to develop, but are contingent on the short-term nature of the protective tariffs and the ability of the government to pick the winners.
The problems are that protective tariffs will not be reduced after the infant industry reaches a foothold, and that governments will not pick industries that are likely to succeed.
Economists have identified a number of cases across different countries and industries where attempts to shelter infant industries failed.
Economists such as Paul Krugman have speculated that those who support protectionism ostensibly to further the interests of workers in the least developed countries are in fact being disingenuous, seeking only to protect jobs in developed countries. Additionally, workers in the least developed countries only accept jobs if they are the best on offer, as all mutually consensual exchanges must be of benefit to both sides, or else they wouldn't be entered into freely. That they accept low-paying jobs from companies in developed countries shows that their other employment prospects are worse. A letter reprinted in the May 2010 edition of Econ Journal Watch identifies a similar sentiment against protectionism from 16 British economists at the beginning of the 20th century.
Conflict
Protectionism has also been accused of being one of the major causes of war. Proponents of this theory point to the constant warfare in the 17th and 18th centuries among European countries whose governments were predominantly
mercantilist
Mercantilism is an economic policy that is designed to maximize the exports and minimize the imports for an economy. It promotes imperialism, colonialism, tariffs and subsidies on traded goods to achieve that goal. The policy aims to reduce ...
and protectionist, the
American Revolution
The American Revolution was an ideological and political revolution that occurred in British America between 1765 and 1791. The Americans in the Thirteen Colonies formed independent states that defeated the British in the American Revolut ...
, which came about ostensibly due to British tariffs and taxes, as well as the protective policies preceding both
World War I
World War I (28 July 1914 11 November 1918), often abbreviated as WWI, was one of the deadliest global conflicts in history. Belligerents included much of Europe, the Russian Empire, the United States, and the Ottoman Empire, with fightin ...
and
World War II
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
. According to a slogan of
Frédéric Bastiat (1801–1850), "When goods cannot cross borders, armies will."
Current world trends
Since the end of
World War II
World War II or the Second World War, often abbreviated as WWII or WW2, was a world war that lasted from 1939 to 1945. It involved the vast majority of the world's countries—including all of the great powers—forming two opposin ...
, it has been the stated policy of most
First World
The concept of First World originated during the Cold War and comprised countries that were under the influence of the United States and the rest of NATO and opposed the Soviet Union and/or communism during the Cold War. Since the collapse of ...
countries to eliminate protectionism through free trade policies enforced by international treaties and organizations such as the
World Trade Organization
The World Trade Organization (WTO) is an intergovernmental organization that regulates and facilitates international trade. With effective cooperation
in the United Nations System, governments use the organization to establish, revise, and e ...
. Certain policies of First World governments have been criticized as protectionist, however, such as the
Common Agricultural Policy
The Common Agricultural Policy (CAP) is the agricultural policy of the European Union. It implements a system of agricultural subsidies and other programmes. It was introduced in 1962 and has since then undergone several changes to reduce the ...
in the European Union, longstanding
agricultural subsidies
An agricultural subsidy (also called an agricultural incentive) is a government incentive paid to agribusinesses, agricultural organizations and farms to supplement their income, manage the supply of agricultural commodities, and influence the ...
and proposed "Buy American" provisions in economic recovery packages in the United States.
Heads of the
G20
The G20 or Group of Twenty is an intergovernmental forum comprising 19 countries and the European Union (EU). It works to address major issues related to the global economy, such as international financial stability, climate change mitigatio ...
meeting in London on 2 April 2009 pledged "We will not repeat the historic mistakes of protectionism of previous eras". Adherence to this pledge is monitored by the Global Trade Alert, providing up-to-date information and informed commentary to help ensure that the G20 pledge is met by maintaining confidence in the world trading system, deterring
beggar-thy-neighbor acts and preserving the contribution that exports could play in the future recovery of the world economy.
Although they were reiterating what they had already committed to, last November in
Washington
Washington commonly refers to:
* Washington (state), United States
* Washington, D.C., the capital of the United States
** A metonym for the federal government of the United States
** Washington metropolitan area, the metropolitan area centered o ...
, 17 of these 20 countries were reported by the World Bank as having imposed trade restrictive measures since then. In its report, the World Bank says most of the world's major economies are resorting to protectionist measures as the global economic slowdown begins to bite. Economists who have examined the impact of new trade-restrictive measures using detailed bilaterally monthly trade statistics estimated that new measures taken through late 2009 were distorting global merchandise trade by 0.25% to 0.5% (about $50 billion a year).
Since then, however, President
Donald Trump
Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who served as the 45th president of the United States from 2017 to 2021.
Trump graduated from the Wharton School of the University of Pe ...
announced in January 2017 the U.S. was abandoning the TPP (
Trans-Pacific Partnership
The Trans-Pacific Partnership (TPP), or Trans-Pacific Partnership Agreement, was a highly contested proposed trade agreement between 12 Pacific Rim economies, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Sin ...
) deal, saying, “We’re going to stop the ridiculous trade deals that have taken everybody out of our country and taken companies out of our country, and it’s going to be reversed.”
See also
*
American System (economic plan) American System may refer to:
* American System (economic plan), an 1800s economic program of Henry Clay and the Whig Party based on the "American School" ideas of Alexander Hamilton
* American system, an informal name for the Universal Numbering ...
*
Autarky
Autarky is the characteristic of self-sufficiency, usually applied to societies, communities, states, and their economic systems.
Autarky as an ideal or method has been embraced by a wide range of political ideologies and movements, especially ...
*
Brexit
Brexit (; a portmanteau of "British exit") was the withdrawal of the United Kingdom (UK) from the European Union (EU) at 23:00 GMT on 31 January 2020 (00:00 1 February 2020 CET).The UK also left the European Atomic Energy Community (EAEC or ...
*
Currency War
Currency war, also known as competitive devaluations, is a condition in international affairs where countries seek to gain a trade advantage over other countries by causing the exchange rate of their currency to fall in relation to other currenc ...
*
Developmentalism
Developmentalism is an economic theory which states that the best way for less developed economies to develop is through fostering a strong and varied internal market and imposing high tariffs on imported goods.
Developmentalism is a cross-discip ...
*
Digital Millennium Copyright Act
The Digital Millennium Copyright Act (DMCA) is a 1998 United States copyright law that implements two 1996 treaties of the World Intellectual Property Organization (WIPO). It criminalizes production and dissemination of technology, devices, or s ...
*
Economic nationalism
Economic nationalism, also called economic patriotism and economic populism, is an ideology that favors state interventionism over other market mechanisms, with policies such as domestic control of the economy, labor, and capital formation, incl ...
*
Free trade debate
Free trade is a trade policy that does not restrict imports or exports. It can also be understood as the free market idea applied to international trade. In government, free trade is predominantly advocated by political parties that hold econo ...
*
Globalization
Globalization, or globalisation (Commonwealth English; see spelling differences), is the process of interaction and integration among people, companies, and governments worldwide. The term ''globalization'' first appeared in the early 20t ...
*
Henry C. Carey
Henry Charles Carey (December 15, 1793 – October 13, 1879) was the leading 19th-century economist of the American School (economics), American School, and chief economic adviser to U.S. President Abraham Lincoln.
Carey is best known for the bo ...
*
Historiography of the fall of the Western Roman Empire
The causes and mechanisms of the fall of the Western Roman Empire are a historical theme that was introduced by historian Edward Gibbon in his 1776 book ''The History of the Decline and Fall of the Roman Empire''. Though Gibbon was not the first ...
*
Imperial Preference
Imperial Preference was a system of mutual tariff reduction enacted throughout the British Empire following the Ottawa Conference of 1932. As Commonwealth Preference, the proposal was later revived in regard to the members of the Commonwealth of N ...
*
International trade
International trade is the exchange of capital, goods, and services across international borders or territories because there is a need or want of goods or services. (see: World economy)
In most countries, such trade represents a significant ...
*
Market-preserving federalism
*
National Policy
The National Policy was a Canadian economic program introduced by John A. Macdonald's Conservative Party in 1876. After Macdonald led the Conservatives to victory in the 1878 Canadian federal election, he began implementing his policy in 1879. Th ...
*
Not Invented Here
Not invented here (NIH) is the tendency to avoid using or buying products, research, standards, or knowledge from external origins. It is usually adopted by social, corporate, or institutional cultures. Research illustrates a strong bias against i ...
*
Project Labor Agreement A Project Labor Agreement (PLA), also known as a Community Workforce Agreement, is a pre-hire collective bargaining agreement with one or more labor unions that establishes the terms and conditions of employment for a specific construction project. ...
*
Protected Geographical Status
Three European Union schemes of geographical indications and traditional specialties, known as protected designation of origin (PDO), protected geographical indication (PGI), and traditional specialities guaranteed (TSG), promote and protect nam ...
* ''
Protection or Free Trade''
*
Protectionism in the United States
Protectionism in the United States is protectionist economic policy that erects tariffs and other barriers on imported goods. In the US this policy was most prevalent in the 19th century. At that time it was mainly used to protect Northern in ...
*
Protective tariff
Protective tariffs are tariffs that are enacted with the aim of protecting a domestic industry. They aim to make imported goods cost more than equivalent goods produced domestically, thereby causing sales of domestically produced goods to rise, ...
*
Rent seeking
Rent-seeking is the act of growing one's existing wealth without creating new wealth by manipulating the social or political environment.
Rent-seeking activities have negative effects on the rest of society. They result in reduced economic effi ...
*
Resistive economy
*
Smoot-Hawley Act
*
Tariff Reform League
The Tariff Reform League (TRL) was a protectionist British pressure group formed in 1903 to protest against what they considered to be unfair foreign imports and to advocate Imperial Preference to protect British industry from foreign competition ...
*
1923 United Kingdom general election
The 1923 United Kingdom general election was held on Thursday 6 December 1923. The Conservative Party (UK), Conservatives, led by Stanley Baldwin, won the most seats, but Labour Party (UK), Labour, led by Ramsay MacDonald, and H. H. Asquith's re ...
*
Voluntary export restraint
A voluntary export restraint (VER) or voluntary export restriction is a measure by which the government or an industry in the importing country arranges with the government or the competing industry in the exporting country for a restriction on t ...
*
Washington Consensus
Further reading
*
*
References
External links
*
{{Authority control
Economic ideologies
Commercial policy
Localism (politics)