223 Protectionism
What you’ll learn to do: explain how barriers to trade (like tariffs, quotas and non-tariff barriers) affect businesses, consumers and workers in the economy
We have seen that international trades raises the standard of living for participating countries. Indeed, free trade maximizes the gains from international trade. While each country is better off through international trade (or more precisely, the average resident is better off), that doesn’t mean that all individuals are better off. Free trade is a policy and like every policy, there are winners and losers. The winners are consumers and workers, managers and owners of firms that produce goods whose demand increases through international trade. The losers are workers, managers and owners of firms whose demand decreases as a result of international trade; that is, firms who produce substitutes for imports.
Protectionism is an attempt to mitigate the harm done by international trade. The most prominent argument for tariffs, quotas and other barriers to trade is to protect jobs and incomes that otherwise would be at risk from foreign imports. This section will explore these issues.
Learning Objectives
- Describe why governments may justify protectionist policies
- Explain and give examples of trade barriers, including quotas, tariffs, and nontariff barriers
Protectionism
Globalization has brought fear of loss of jobs and loss of income, which are often described as the “race to the bottom,” as industrialized countries are thought to have to reduce wages to be competitive with those in the developing world. Globalization has also spawned fears about loss of culture. Many countries worry about their cultures being overwhelmed by that of the United States. France is a good example. Others fear replacement of their cultures by that of Western nations (e.g., some Islamic states). Countries also fear the loss of national sovereignty as they become part of supranational entitles, like the European Union or the International Monetary Fund. And yet, history shows that globalization has corresponded to higher national incomes and increased opportunities. How can these conflicting views be reconciled?
When a government legislates policies to reduce or block international trade it is engaging in protectionism. Protectionist policies often seek to shield domestic producers and domestic workers from foreign competition. The Trump Administration’s tariffs on steel and aluminum in 2018 are a recent example.
Watch It
A government may justify protectionist policies for one of the following reasons, which are outlined in this video:
- Protect domestic jobs.
- Level the playing field.
- Raise additional revenue for the domestic government.
- National defense—protect some industries in case of time of war.
- Infant industries—protect new industries until they are more mature
- Promote exports.
HOW DOES THE UNITED STATES REALLY FEEL ABOUT EXPANDING TRADE?
How do people around the world feel about e