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Protectionism, sometimes referred to as trade protectionism, is the
economic policy ''Economic Policy'' is a quarterly peer-reviewed academic journal published by Oxford University Press, Oxford Academic on behalf of the Centre for Economic Policy Research, the Center for Economic Studies (University of Munich), and the Paris Scho ...
of restricting imports from other countries through methods such as
tariff A tariff or import tax is a duty (tax), duty imposed by a national Government, government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods ...
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. An import embargo or import ban is essentially a zero-level import quota. Quotas, ...
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 and raise
government revenue Government revenue or national revenue is money received by a government from Tax revenue, taxes and Non-tax revenue, non-tax sources to enable it, assuming full resource employment, to undertake non-inflationary public expenditure. Government re ...
. 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. Traders generally negotiate through a medium of cr ...
, 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 against which the protections are implemented. Protectionism has been advocated mainly by parties that hold economic nationalist positions, while economically liberal political parties generally support
free trade Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold Economic liberalism, economically liberal positions, while economic nationalist politica ...
. 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 comparative advantage, theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency. Most ...
s have a significantly positive effect on
economic growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...
. 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."
Many mainstream economists, such as Douglas Irwin, have implicated protectionism as an important contributing factor in some economic crises, most notably the
Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...
. A more reserved perspective is offered by New Keynesian economist Paul Krugman, who argues that tariffs were not the main cause of the Great Depression but rather a response to it, and that protectionism is a minor source of allocative inefficiency. Although trade liberalization can sometimes result in unequally distributed losses and gains, and can, in the short run, cause economic dislocation of workers in import-competing sectors, free trade lowers the costs of goods and services for both producers and consumers.


Protectionist policies

A variety of policies have been used to achieve protectionist goals. These include: *
Tariff A tariff or import tax is a duty (tax), duty imposed by a national Government, government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods ...
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. An import embargo or import ban is essentially a zero-level import quota. Quotas, ...
s are the most common types of protectionist policies.Paul Krugman, Robin Wells & Martha L. Olney, ''Essentials of Economics'' (Worth Publishers, 2007), pp. 342–345. 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 used primarily to protect domestic producers and wage rates from lower-priced 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 ownership stake in a company, made by a foreign investor, company, or government from another country. More specifically, it describes a controlling ownership an asset in one country by an entity based i ...
, 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, food processing, preparation, and food storage, storage of food in ways that prevent foodborne illness. The occurrence of two or more cases of a simi ...
, 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, subvention or government incentive is a type of government expenditure for individuals and households, as well as businesses with the aim of stabilizing the economy. It ensures that individuals and households are viable by having acce ...
: 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, subvention or government incentive is a type of government expenditure for individuals and households, as well as businesses with the aim of stabilizing the economy. It ensures that individuals and households are viable by having acce ...
: 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. 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 average price of goods and services in terms of money. This increase is measured using a price index, typically a consumer price index (CPI). When the general price level rises, each unit of curre ...
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 sufficiency of disclosure, enabling discl ...
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 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, 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, 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 legal 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, ...
, 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

In the 18th century,
Adam Smith Adam Smith (baptised 1723 – 17 July 1790) was a Scottish economist and philosopher who was a pioneer in the field of political economy and key figure during the Scottish Enlightenment. Seen by some as the "father of economics"——— or ...
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 saw Adam Smith's views on
free trade Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold Economic liberalism, economically liberal positions, while economic nationalist politica ...
as disingenuous, believing that Smith advocated for free trade so that British industry could lock out underdeveloped foreign competition. 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 study shows 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."


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, sometimes used to boost dairy production, led to hearings before the
Senate of Canada The Senate of Canada () is the upper house of the Parliament of Canada. Together with the Monarchy of Canada#Parliament (King-in-Parliament), Crown and the House of Commons of Canada, House of Commons, they compose the Bicameralism, bicameral le ...
, 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.


China

In 2010, Paul Krugman wrote that China pursues a mercantilist and predatory policy, i.e., it keeps its currency undervalued to accumulate trade surpluses by using capital flow controls. The Chinese government sells
renminbi The renminbi ( ; currency symbol, symbol: Yen and yuan sign, ¥; ISO 4217, ISO code: CNY; abbreviation: RMB), also known as the Chinese yuan, is the official currency of the China, People's Republic of China. The renminbi is issued by the Peop ...
and buys foreign currency to keep the renminbi low, giving the Chinese manufacturing sector a cost advantage over its competitors. China's surpluses drain US demand and slow economic recovery in other countries with which China trades. Krugman writes: "This is the most distorted exchange rate policy any great nation has ever followed". He notes that an undervalued renminbi is tantamount to imposing high
tariff A tariff or import tax is a duty (tax), duty imposed by a national Government, government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods ...
s or providing export subsidies. A cheaper currency improves employment and competitiveness because it makes imports more expensive while making domestic products more attractive. He expects Chinese surpluses to destroy 1.4 million American jobs by 2011. In June 2015, the international community, through the IMF, rejected this notion and assessed the renminbi as suggested to be no longer undervalued. Later that year, American economist
Charles Calomiris Charles William Calomiris (born November 8, 1957) is an American financial policy expert, author, and co-director of the Institute for Research in Economics in Washington, D.C. Previously, he was a professor at Columbia Business School, where he was ...
wrote that US presidential candidate at the time
Donald Trump Donald John Trump (born June 14, 1946) is an American politician, media personality, and businessman who is the 47th president of the United States. A member of the Republican Party (United States), Republican Party, he served as the 45 ...
had falsely characterized the trajectory of the renminbi's exchange rate in nominal terms and especially so when using the real exchange rate, and that a recent devaluation by the PBC was a passive one where inaction would've led to an even steeper devaluation by market forces, understandably so after the disappearance of "a lot of hinese economic growthlow-hanging fruit that was easily picked in the 1980s, 1990s, and 2000s."


Europe


Continental 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 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 in 1846 as the decisive shift toward free trade in Britain. A 1990 study by the Harvard economic historian Jeffrey Williamson showed that the Corn Laws (which imposed restrictions and tariffs on imported
grain A grain is a small, hard, dry fruit (caryopsis) – with or without an attached husk, 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 ...
) 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 (), also called the Turkish Empire, was an empire, imperial realm that controlled much of Southeast Europe, West Asia, and North Africa from the 14th to early 20th centuries; it also controlled parts of southeastern Centr ...
also became increasingly protectionist. In the Ottoman Empire's case, however, it previously had liberal
free trade Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold Economic liberalism, economically liberal positions, while economic nationalist politica ...
policies during the 18th to early 19th centuries, which British prime minister
Benjamin Disraeli Benjamin Disraeli, 1st Earl of Beaconsfield (21 December 1804 – 19 April 1881) was a British statesman, Conservative Party (UK), Conservative politician and writer who twice served as Prime Minister of the United Kingdom. He played a ...
cited as "an instance of the injury done by unrestrained competition" in the 1846 Corn Laws 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, but John Tsang, then
Hong Kong Hong Kong)., Legally Hong Kong, China in international treaties and organizations. is a special administrative region of China. With 7.5 million residents in a territory, Hong Kong is the fourth most densely populated region in the wor ...
's Secretary for Commerce, Industry and Technology and chair of the Sixth Ministerial Conference of the World Trade Organization, MC6, commented in 2005 that the EU spent around €70 billion per year on "trade-distorting support".


United Kingdom

Great Britain Great Britain is an island in the North Atlantic Ocean off the north-west coast of continental Europe, consisting of the countries England, Scotland, and Wales. With an area of , it is the largest of the British Isles, the List of European ...
, and England in particular, became one of the most prosperous economic regions in the world between the late 17th century and the early 19th century as a result of being the birthplace of the
Industrial Revolution The Industrial Revolution, sometimes divided into the First Industrial Revolution and Second Industrial Revolution, was a transitional period of the global economy toward more widespread, efficient and stable manufacturing processes, succee ...
that began in the mid-eighteenth century. The government protected its merchants—and kept others out—by trade barriers, regulations, and subsidies to domestic industries in order to maximize exports from and minimize imports to the realm. The Navigation Acts of the late 17th century required all trade to be carried in English ships, manned by English crews (this later encompassed all Britons after the
Acts of Union 1707 The Acts of Union refer to two acts of Parliament, one by the Parliament of Scotland in March 1707, followed shortly thereafter by an equivalent act of the Parliament of England. They put into effect the international Treaty of Union agree ...
united Scotland with England). Colonists were required to send their produce and raw materials first of all to Britain, where the surplus was then sold-on by British merchants to other colonies in the British empire or bullion-earning external markets. The colonies were forbidden to trade directly with other nations or rival empires. The goal was to maintain the North American and Caribbean colonies as dependent agricultural economies geared towards producing raw materials for export to Britain. The growth of native industry was discouraged, in order to keep the colonies dependent on the United Kingdom for their finished goods. From 1815 to 1870, the United Kingdom reaped the benefits of being the world's first modern, industrialised nation. It described itself as "the workshop of the world", meaning that its finished goods were produced so efficiently and cheaply that they could often undersell comparable, locally manufactured goods in almost any other market. By the 1840s, the United Kingdom had adopted a free-trade policy, meaning open markets and no tariffs throughout the empire. The Corn Laws were
tariff A tariff or import tax is a duty (tax), duty imposed by a national Government, government, customs territory, or supranational union on imports of goods and is paid by the importer. Exceptionally, an export tax may be levied on exports of goods ...
s and other trade restrictions on imported food and
corn Maize (; ''Zea mays''), also known as corn in North American English, is a tall stout Poaceae, grass that produces cereal grain. It was domesticated by indigenous peoples of Mexico, indigenous peoples in southern Mexico about 9,000 years ago ...
enforced in the
United Kingdom The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom (UK) or Britain, is a country in Northwestern Europe, off the coast of European mainland, the continental mainland. It comprises England, Scotlan ...
between 1815 and 1846, and enhanced the profits and political power associated with land ownership. The laws raised
food prices Food prices refer to the average price level for food across countries, regions and on a global scale. Food prices affect producers and consumers of food. Price levels depend on the food production process, including food marketing and food di ...
and the costs of living for the British public, and hampered the growth of other British economic sectors, such as manufacturing, by reducing the disposable income of the British public. The Prime Minister, Sir Robert Peel, a
Conservative Conservatism is a cultural, social, and political philosophy and ideology that seeks to promote and preserve traditional institutions, customs, and values. The central tenets of conservatism may vary in relation to the culture and civiliza ...
, achieved repeal in 1846 with the support of the Whigs in Parliament, overcoming the opposition of most of his own party. While the United Kingdom espoused a policy of free trade in the late nineteenth century, it was hardly the case that Britain was unaffected by the tariffs imposed by its trade partners—tariffs that generally increased during the late nineteenth century. According to one study, Britain's exports in 1902 would have been 57% higher, if all of Britain's trade partners also embraced free trade. The decline in overseas demand for British exports, resulting from foreign tariffs, contributed to the so-called late-Victorian climacteric in the British economy: a decline in the growth rate, i.e. a deceleration. During the interwar era, Britain abandoned free trade. There was a limited erosion of free trade during the 1920s under a patchwork of legislation including the Safeguarding of Industries Act of 1921, the Safeguarding of Industries Act of 1925, and the Finance Act of 1925. The McKenna Duties, which were imposed during the First World War on motorcars; clocks and watches; musical instruments; and cinematographic film were retained. Under commodities that were early to receive protection included matches, chemicals, scientific equipment, silk, rayon, embroidery, lace, cutlery, gloves, incandescent mantles, paper, pottery, enamelled holloware, and buttons. The duties on motorcars and rayon have been determined to have expanded output considerably. Amid the Depression, Britain passed the Import Duties Act of 1932, which imposed a general tariff of 10% on most imports and created the Import Duties Advisory Committee (IDAC), which could recommend even higher duties. Britain's protectionism in the early 1930s was shown by Lloyd and Solomou to have been productivity-enhancing. The possessions of the
East India Company The East India Company (EIC) was an English, and later British, joint-stock company that was founded in 1600 and dissolved in 1874. It was formed to Indian Ocean trade, trade in the Indian Ocean region, initially with the East Indies (South A ...
in India, known as
British India The provinces of India, earlier presidencies of British India and still earlier, presidency towns, were the administrative divisions of British governance in South Asia. Collectively, they have been called British India. In one form or another ...
, was the centrepiece of the British Empire, and because of an efficient taxation system it paid its own administrative expenses as well as the cost of the large British Indian Army. In terms of trade, India turned only a small profit for British business. However, transfers to the British government was massive: in 1801 unrequited (unpaid, or paid from Indian-collected revenue) was about 30% of British domestic savings available for capital formation in the United Kingdom.


Latin America

Most Latin American countries gained independence in the early 19th century, with notable exceptions including Spanish Cuba and Spanish Puerto Rico. Following the achievement of their independence, many of the Latin American countries adopted protectionism. They both feared that any foreign competition would stomp out their newly created state and believed that lack of outside resources would drive domestic production. The protectionist behavior continued up until and during the World Wars. During World War 2, Latin America had, on average, the highest tariffs in the world.


Argentina

Argentina, which had been insignificant during the first half of the 19th century, showed an impressive and sustained economic performance from the 1860s up until 1930. A 2018 study describes Argentina as a "super-exporter" during the period 1880–1929, and credits the boom to low trade costs and trade liberalization on one hand and on the other hand to the fact that Argentina "offered a diverse basket of products to the different European and American countries that consumed them". The study concludes "that Argentina took advantage of a multilateral and open economic system." Beginning in the 1940s,
Juan Perón Juan Domingo Perón (, , ; 8 October 1895 – 1 July 1974) was an Argentine military officer and Statesman (politician), statesman who served as the History of Argentina (1946-1955), 29th president of Argentina from 1946 to Revolución Libertad ...
erected a system of almost complete protectionism against imports, largely cutting off Argentina from the international market. Protectionism created a domestically oriented industry with high production costs, incapable of competing in international markets. At the same time, output of beef and grain, the country's main export goods, stagnated. The IAPI began shortchanging growers and, when world grain prices dropped in the late 1940s, it stifled agricultural production, exports and business sentiment, in general. Despite these shortcomings, protectionism and government credits did allow an exponential growth of the internal market: radio sales increased 600% and fridge sales grew 218%, among others. During this period Argentina's economy continued to grow, on average, but more slowly than the world as a whole or than its neighbors, Brazil and Chile. By 1954, while still leading the region, Argentina's GDP per capita had fallen to less than half of that of the United States, from being 80% equivalent before the 1930s.


United States

The
United States The United States of America (USA), also known as the United States (U.S.) or America, is a country primarily located in North America. It is a federal republic of 50 U.S. state, states and a federal capital district, Washington, D.C. The 48 ...
has employed tariffs throughout much of its history.
Alexander Hamilton Alexander Hamilton (January 11, 1755 or 1757July 12, 1804) was an American military officer, statesman, and Founding Fathers of the United States, Founding Father who served as the first U.S. secretary of the treasury from 1789 to 1795 dur ...
, 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 ...
, supported tariffs at the country's inception in his 1791 Report on Manufactures.
Abraham Lincoln Abraham Lincoln (February 12, 1809 – April 15, 1865) was the 16th president of the United States, serving from 1861 until Assassination of Abraham Lincoln, his assassination in 1865. He led the United States through the American Civil War ...
signed the 1861 Morrill Tariff to raise revenue during the
United States Civil War The American Civil War (April 12, 1861May 26, 1865; also known by other names) was a civil war in the United States between the Union ("the North") and the Confederacy ("the South"), which was formed in 1861 by states that had seceded ...
. In the early years of
the Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank an ...
, over the objection of many economists, Hoover signed the Smoot–Hawley Tariff Act into law in June 1930. 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 served 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. 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 ...
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 Fathers of the United States, Founding Father who served as the first U.S. secretary of the treasury from 1789 to 1795 dur ...
, 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", that developing an industrialized economy was impossible without protectionism because import duties are necessary to shelter domestic " infant industries" 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 Productivity, output produced per unit of cost (production cost). A decrease in ...
. 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. Until World War II, the United States maintained among the highest tariff rates globally. 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 first Trump administration during the
China–United States trade war An economic conflict between China and the United States has been ongoing since January 2018, when U.S. president Donald Trump began Tariffs in the first Trump administration, imposing tariffs and other trade barriers on China with the aim of fo ...
led to a reduction in the United States trade deficit with China. The
Republican Party (United States) The Republican Party, also known as the Grand Old Party (GOP), is a Right-wing politics, right-wing political parties in the United States, political party in the United States. One of the Two-party system, two major parties, it emerged as t ...
, a fiscally conservative political party, has historically often supported protectionism and currently does so.


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. In government, free trade is predominantly advocated by political parties that hold Economic liberalism, economically liberal positions, while economic nationalist politica ...
and the reduction of
trade barrier Trade barriers are government-induced restrictions on international trade. According to the comparative advantage, theory of comparative advantage, trade barriers are detrimental to the world economy and decrease overall economic efficiency. Most ...
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. However, protectionism can be used to raise government revenue and enable access to intellectual property, including essential medicines. Protectionism is frequently criticized by economists as harming the people it is intended 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 Comparative advantage in an economic model is the advantage over others in producing a particular Goods (economics), good. A good can be produced at a lower relative opportunity cost or autarky price, i.e. at a lower relative marginal cost prior t ...
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; this loss to overall welfare gives no-one any benefit, unlike in a free market (without trade barriers), where there is no such total loss. Economist Stephen P. Magee claims the benefits of free trade outweigh the losses by as much as 100 to 1.


Economic impact


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 benefited US consumers, as the price of Chinese goods were substantially reduced. Harvard economist Dani Rodrik 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

An empirical study by Furceri et al. (2019) concluded that protectionist measures like tariff increases have a significant adverse impact on domestic output and productivity. A prominent 1999 study by Jeffrey A. Frankel and David H. Romer found while controlling for relevant factors, that free trade does have a positive impact on growth and incomes. The effect is quantitatively large and statistically significant. Economist Arvind Panagariya criticizes the view that protectionism is good for growth. Such arguments, according to him, arise from "revisionist interpretation" of East Asian "tigers"' economic history. The Asian tigers achieved a rapid increase in per capita income without any "redistributive social programs", through free trade, which advanced Western economies took a century to achieve. 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." According to Dartmouth economist Douglas Irwin, "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." One study by the economic historian Brian Varian found no correlation between tariffs and growth among the Australian colonies in the late nineteenth century, a time when each of the colonies had the independence to set their own tariffs. 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."


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 ...
and Paul Krugman have argued for free trade as a model for
economic development In economics, economic development (or 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 object ...
. Alan Greenspan, 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. It was created on December 23, 1913, with the enactment of the Federal Reserve Act, after a series of ...
, 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. 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.


Intellectual property

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international legal agreement between all the member nations of the
World Trade Organization The World Trade Organization (WTO) is an intergovernmental organization headquartered in Geneva, Switzerland that regulates and facilitates international trade. Governments use the organization to establish, revise, and enforce the rules that g ...
(WTO). It establishes minimum standards for the regulation by national governments of different forms of
intellectual property Intellectual property (IP) is a category of property that includes intangible creations of the human intellect. There are many types of intellectual property, and some countries recognize more than others. The best-known types are patents, co ...
(IP) as applied to nationals of other WTO member nations. TRIPS was negotiated at the end of the
Uruguay Round The Uruguay Round was the 8th round of multilateral trade negotiations (MTN) conducted within the framework of the General Agreement on Tariffs and Trade (GATT), spanning from 1986 to 1993 and embracing 123 countries as "contracting parties". The ...
of the
General Agreement on Tariffs and Trade The General Agreement on Tariffs and Trade (GATT) is a legal agreement between many countries, whose overall purpose was to promote international trade by reducing or eliminating trade barriers such as tariffs or quotas. According to its p ...
(GATT) between 1989 and 1990 and is administered by the WTO. Statements by the World Bank indicate that TRIPS has not led to a demonstrable acceleration of investment to low-income countries, though it may have done so for middle-income countries. Critics argue that TRIPS limits the ability of governments to introduce competition for generic producers. The TRIPS agreement allows the grant of compulsory licenses at a nation's discretion. TRIPS-plus conditions in the United States' FTAs with Australia, Jordan, Singapore and Vietnam have restricted the application of compulsory licenses to emergency situations, antitrust remedies, and cases of public non-commercial use.


Access to essential medicines

One of the most visible conflicts over TRIPS has been
AIDS The HIV, human immunodeficiency virus (HIV) is a retrovirus that attacks the immune system. Without treatment, it can lead to a spectrum of conditions including acquired immunodeficiency syndrome (AIDS). It is a Preventive healthcare, pr ...
drugs in
Africa Africa is the world's second-largest and second-most populous continent after Asia. At about 30.3 million km2 (11.7 million square miles) including adjacent islands, it covers 20% of Earth's land area and 6% of its total surfac ...
. Despite the role that patents have played in maintaining higher drug costs for public health programs across Africa, this controversy has not led to a revision of TRIPS. Instead, an interpretive statement, the
Doha Declaration Doha conference can refer to several meetings held in Doha, Qatar: * The WTO Ministerial Conference of 2001 ** leading to the Doha Development Round ** and the Doha Declaration on the TRIPS agreement and public health, Doha Declaration on the TRIPS ...
, was issued in November 2001, which indicated that TRIPS should not prevent states from dealing with public health crises and allowed for compulsory licenses. After Doha, PhRMA, the United States and to a lesser extent other developed nations began working to minimize the effect of the declaration. In 2020, conflicts re-emerged over patents, copyrights and trade secrets related to COVID-19 vaccines, diagnostics and treatments.
South Africa South Africa, officially the Republic of South Africa (RSA), is the Southern Africa, southernmost country in Africa. Its Provinces of South Africa, nine provinces are bounded to the south by of coastline that stretches along the Atlantic O ...
and
India India, officially the Republic of India, is a country in South Asia. It is the List of countries and dependencies by area, seventh-largest country by area; the List of countries by population (United Nations), most populous country since ...
proposed that WTO grant a temporary waiver to enable more widespread production of the vaccines, since suppressing the virus as quickly as possible benefits the entire world. The waivers would be in addition to the existing, but cumbersome, flexibilities in TRIPS allowing countries to impose compulsory licenses. Over 100 developing nations supported the waiver but it was blocked by the G7 members. This blocking was condemned by 400 organizations including Doctors Without Borders and 115 members of the
European Parliament The European Parliament (EP) is one of the two legislative bodies of the European Union and one of its seven institutions. Together with the Council of the European Union (known as the Council and informally as the Council of Ministers), it ...
. In June 2022, after extensive involvement of the
European Union The European Union (EU) is a supranational union, supranational political union, political and economic union of Member state of the European Union, member states that are Geography of the European Union, located primarily in Europe. The u ...
, the WTO instead adopted a watered-down agreement that focuses only on vaccine patents, excludes high-income countries and China, and contains few provisions that are not covered by existing flexibilities.


Armed conflicts

Protectionism has been attributed as a major cause 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 a nationalist economic policy that is designed to maximize the exports and minimize the imports of an economy. It seeks to maximize the accumulation of resources within the country and use those resources for one-sided trade. ...
and protectionist, the
American Revolution The American Revolution (1765–1783) was a colonial rebellion and war of independence in which the Thirteen Colonies broke from British America, British rule to form the United States of America. The revolution culminated in the American ...
, which came about ostensibly due to British tariffs and taxes. According to a slogan of Frédéric Bastiat (1801–1850), "When goods cannot cross borders, armies will." On the other hand, archaeologist Lawrence H. Keeley argues in his book War Before Civilization that disputes between trading partners escalate to war more frequently than disputes between nations that don't trade much with each other. The Opium Wars were fought between the UK and
China China, officially the People's Republic of China (PRC), is a country in East Asia. With population of China, a population exceeding 1.4 billion, it is the list of countries by population (United Nations), second-most populous country after ...
over the right of British merchants to engage in the free trade of
opium Opium (also known as poppy tears, or Lachryma papaveris) is the dried latex obtained from the seed Capsule (fruit), capsules of the opium poppy ''Papaver somniferum''. Approximately 12 percent of opium is made up of the analgesic alkaloid mor ...
. For many opium users, what started as recreation soon became a punishing addiction: many people who stopped ingesting opium suffered chills, nausea, and cramps, and sometimes died from withdrawal. Once addicted, people would often do almost anything to continue to get access to the drug. Barbara Tuchman says both European intellectuals and leaders overestimated the power of
free trade Free trade is a trade policy that does not restrict imports or exports. In government, free trade is predominantly advocated by political parties that hold Economic liberalism, economically liberal positions, while economic nationalist politica ...
on the eve of
World War I World War I or the First World War (28 July 1914 – 11 November 1918), also known as the Great War, was a World war, global conflict between two coalitions: the Allies of World War I, Allies (or Entente) and the Central Powers. Fighting to ...
. They believed that the interconnectedness of European nations through trade would stop a continent-wide war from breaking out, as the economic consequences would be too great. However, the assumption proved incorrect. For example, Tuchman noted that Helmuth von Moltke the Younger, when warned of such consequences, refused to even consider them in his plans, arguing he was a "soldier," not an "economist."


Current world trends

Certain policies of First World governments have been criticized as protectionist, such as the
Common Agricultural Policy The Common Agricultural Policy (CAP) is the agricultural policy of the European Commission. It implements a system of agricultural subsidies and other programmes. It was introduced in 1962 and has since then undergone several changes to reduce ...
in the European Union, longstanding agricultural subsidies and proposed "Buy American" provisions in economic recovery packages in the United States. Heads of the G20 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 in the 2008 Washington G20 summit, 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 is the 47th president of the United States. A member of the Republican Party (United States), Republican Party, he served as the 45 ...
announced in January 2017 the U.S. was abandoning the TPP ( Trans-Pacific Partnership) 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." President
Joe Biden Joseph Robinette Biden Jr. (born November 20, 1942) is an American politician who was the 46th president of the United States from 2021 to 2025. A member of the Democratic Party (United States), Democratic Party, he served as the 47th vice p ...
largely continued Trump's protectionist policies, and did not negotiate any new free trade agreements during his presidency. The 2010s and early 2020s have seen an increased use of protectionist economic policies across both developed countries and developing countries worldwide.


See also

* American System (economic plan) *
Autarky Autarky is the characteristic of self-sufficiency, usually applied to societies, communities, states, and their economic systems. Autarky as an ideology or economic approach has been attempted by a range of political ideologies and movement ...
*
Brexit Brexit (, a portmanteau of "Britain" and "Exit") was the Withdrawal from the European Union, withdrawal of the United Kingdom (UK) from the European Union (EU). Brexit officially took place at 23:00 GMT on 31 January 2020 (00:00 1 February ...
*
Currency war Currency war, also known as competitive devaluations, is a condition in international relations, international affairs where countries seek to gain a trade advantage over other countries by causing the exchange rate of their currency to fall in r ...
* Developmentalism * Digital Millennium Copyright Act * Economic nationalism * Free trade debate *
Globalization Globalization is the process of increasing interdependence and integration among the economies, markets, societies, and cultures of different countries worldwide. This is made possible by the reduction of barriers to international trade, th ...
* Henry C. Carey * Historiography of the fall of the Western Roman Empire * Imperial Preference *
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 significan ...
* Market-preserving federalism * National Policy * Not invented here * Project Labor Agreement * Protected Geographical Status * '' 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. This policy was most prevalent in the 19th century. At that time, it was mainly used to protect Northern United State ...
* Protective tariff * Rent seeking * Resistive economy * Smoot-Hawley Act * Tariff Reform League *
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 Prime Minister Stanley Baldwin, won the most seats, but Labour Party (UK), Labour, led by Ramsay MacDonald, and H. ...
* Voluntary export restraint *
Washington Consensus The Washington Consensus is a set of ten economic policy prescriptions considered in the 1980s and 1990s to constitute the "standard" reform package promoted for Economic crisis, crisis-wracked developing country, developing countries by the Was ...


Further reading

* Feenstra, Robert C. 1992.
How Costly Is Protectionism?
''Journal of Economic Perspectives'', 6 (3): 159–178. * *


References


External links

* * {{Authority control Economic ideologies Commercial policy Localism (politics)