Protectionism

Protectionism, economic policy of protecting the industries and/or agriculture of a state against foreign competition through government intervention, the converse of free trade. It occurs when one country erects barriers to commerce with other countries. These barriers can take many forms: tariffs, quotas, or bureaucratic or technical rules. Governments that take a protectionist line often use more than one of these barriers, and they will often claim that they are doing so to protect local industries against unfair foreign competition, citing such things as subsidies to foreign competitors, or labyrinthine distribution networks that make it difficult in practice for outsiders to penetrate a foreign market. These barriers may also be in reaction to dumping: the practice of selling goods abroad at less than their true cost—a practice indulged in by firms seeking to gain market share or by state-subsidized firms that can afford to absorb the loss. Subsidies and dumping are themselves also antithetical to free international trade.

High import tariffs increase the price of imported goods, and therefore make them less attractive to domestic purchasers. Quotas restrict the number of goods, such as the number of foreign (say Japanese) cars, that may be imported into a country within a specific period. Bureaucratic and technical barriers are more intangible, but no less effective. A special technical safety requirement that local manufacturers are well used to meeting may cause immense problems for a non-domestic producer who is making goods for a global market that considers such a requirement unnecessary. Bureaucratic rules that insist that all imports of a particular type have to go to a small and under-resourced unit for processing and approval before they can go into the shops can add so much time to the distribution process that, by the time they reach the shops, the imported goods may be no more advanced technologically or otherwise than other goods on sale.

Increasingly the proponents of free trade are winning the argument against protectionism. The General Agreement of Tariffs and Trade consistently and effectively sought to reduce barriers to trade between nations, and took a lead in measures to stamp out dumping. The single market programme of the European Union has been very successful in its aim to eliminate trade and other barriers between member countries. The North American Free Trade Agreement between the United States, Canada, and Mexico has created another massive free trade area. And throughout the world, other free trade groupings are on the increase. The World Trade Organization has been given unprecedented powers to monitor and prosecute protectionism.

The argument against protectionism is that it distorts the market and provides little incentive for local firms to improve their efficiency, and that it may even encourage them to become less efficient—for the simple reason that they do not have to worry so much (or at all) about competition from foreign firms. The case for free trade and a free market economy, on the other hand, is that they ensure that there is no dead hand inhibiting economic progress, and that there is what is sometimes referred to as a “level playing field”. This may mean that inefficient companies are forced out of business, but it also means that the more efficient companies that take their place can operate unhindered by protectionist measures that may damage their export potential. Today, however, problems arise mainly not from getting countries to agree to the principle of free trade, but in making sure they abide by it.