Protectionism – Wikipedia

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economic policy of restrict trade between state through politics regulation
“ protectionist ” redirect here. For other consumption, examine protectionist ( disambiguation )
Political poster by the British Liberal Party presenting their view of the differences between an economy based on free trade versus one based on protectionism. The free trade shop is shown as full with customers due to its low prices. The shop based on protectionism shows higher prices and a lack of customers, and with animosity between the business owner and the regulator.
Anti-free trade postcard from 1910

Economic policy of restraining trade between states through government regulations

“Protectionist” redirects here. For other uses, see Protectionist (disambiguation)

Political poster by the British Liberal Party presenting their view of the differences between an economy based on free trade versus one based on protectionism. The free trade shop is shown as full with customers due to its low prices. The shop based on protectionism shows higher prices and a lack of customers, and with animosity between the business owner and the regulator.
Anti-free trade postcard from 1910

Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, 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 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.[citation needed]

Protectionism is advocated mainly by parties that hold economic nationalist or left-wing positions (although paleoconservatives have also supported the practice), while economically right-wing political parties generally support free trade.[1][2][3][4][5]

There is a consensus among economists that protectionism has a negative effect on economic growth and economic welfare,[6][7][8][9] while free trade and the reduction of trade barriers have a significantly positive effect on economic growth.[7][10][11][12][13][14] Some scholars, such as Douglas Irwin, have implicated protectionism as the cause of some economic crises, most notably the Great Depression.[15] Although trade liberalization can sometimes result in large and unequally distributed losses and gains, and can, in the short run, cause significant economic dislocation of workers in import-competing sectors,[16] free trade has advantages of lowering costs of goods and services for both producers and consumers.[17]

Protectionist policies

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Logo of Belgium’s National League for the Franc’s Defense, 1924

A variety of policies have been used to achieve protectionist goals. These include:

  • Tariffs and import quotas are the most common types of protectionist policies.[18] A tariff is an excise tax 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.[18]
  • Protection of technologies, patents, technical and scientific knowledge [19][20][21]
  • Restrictions on foreign direct investment,[22] such as restrictions on the acquisition of domestic firms by foreign investors.[23]
  • Administrative barriers: Countries are sometimes accused of using their various administrative rules (e.g. regarding food safety, 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: 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: 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 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 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 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.”[24]
  • 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, 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.[25]

History

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Tariff Rates in Japan (1870–1960)
Tariff Rates in Spain and Italy (1860–1910)

Historically, protectionism was associated with economic theories such as mercantilism (which focused on achieving positive trade balance and accumulating gold), and import substitution.[citation needed]

In the 18th century, Adam Smith famously warned against the “interested sophistry” of industry, seeking to gain an advantage at the cost of the consumers.[26] Friedrich List saw Adam Smith’s views on free trade as disingenuous, believing that Smith advocated for free trade so that British industry could lock out underdeveloped foreign competition.[27]

Some have argued that no major country has ever successfully industrialized without some form of economic protection.[28][29] Economic historian Paul Bairoch wrote that “historically, free trade is the exception and protectionism the rule”.[30]

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.”[31]

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.”[31]

In the United States

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Tariff rates (France, UK, and US)
Average tariff rates in US (1821–2016)
US trade balance (1895–2015)

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.[32] A review by The Economist of Irwin’s 2017 book Clashing over Commerce: A History of US Trade Policy states:[32]

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.”[33] From 1790 to 1860, average tariffs increased from 20 percent to 60 percent before declining again to 20 percent.[33] 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.[33]

Economist Paul Bairoch 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.[34] Alexander Hamilton, the first United States Secretary of the Treasury, 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.[35] 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.[36] 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.[37] 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.[38] Up until the end of World War II, the United States had the most protectionist economy on Earth.[39]

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.[40] 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.[41]

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”.[42]

The tariffs imposed by the Trump administration during the China-United States trade war led to a reduction in the United States trade deficit with China.[43]

In Europe

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Europe became increasingly protectionist during the eighteenth century.[44] 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.[44]

Europe increasingly liberalized its trade during the 19th century.[45] Countries such as Britain, the Netherlands, Denmark, Portugal and Switzerland, and arguably Sweden and Belgium, had fully moved towards free trade prior to 1860.[45] Economic historians see the repeal of the Corn Laws in 1846 as the decisive shift toward free trade in Britain.[45][46] A 1990 study by the Harvard economic historian Jeffrey Williamson showed that the Corn Laws (which imposed restrictions and tariffs on imported grain) 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.[47] 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”.[45]

Findlay and O’Rourke characterize 1860 Cobden Chevalier treaty between France and the United Kingdom as “a decisive shift toward European free trade.”[45] 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).”[45]

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 also became increasingly protectionist.[48] In the Ottoman Empire’s case, however, it previously had liberal free trade policies during the 18th to early 19th centuries, which British prime minister Benjamin Disraeli 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.[34]

The countries of Western Europe began to steadily liberalize their economies after World War II and the protectionism of the interwar period.[44]

In Canada

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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.[citation needed] Doubts about the safety of bovine growth hormone, sometimes used to boost dairy production, led to hearings before the Senate of Canada, resulting in a ban in Canada. Thus supply management of milk products is consumer protection of Canadians.[49]

In Quebec, the Federation of Quebec Maple Syrup Producers manages the supply of maple syrup.[citation needed]

In Latin America

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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.[50]

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.[51]

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.[52]

Impact

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There is a broad consensus among economists that protectionism has a negative effect on economic growth and economic welfare, while free trade and the reduction of trade barriers has a positive effect on economic growth.[10][11][12][7][53][54][55]

Protectionism is frequently criticized by economists as harming the people it is meant to help. Mainstream economists instead support free trade.[26][56] The principle of comparative advantage 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.[57] Protectionism results in deadweight loss; 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.[58]

Living standards

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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.[59] Other research found that China’s entry to the WTO benefitted US consumers, as the price of Chinese goods were substantially reduced.[60] 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 [of globalization]”.[61]

Growth

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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.”[44]

Economic historian Paul Bairoch argued that economic protection was positively correlated with economic and industrial growth during the 19th century. For example, GNP 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.[62] 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.[63] However, another study examining the tariff variation across the Australian colonies prior to Federation did not find any association between tariffs and growth.[64]

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.”[65] Irwin furthermore writes that “few observers have argued outright that the high tariffs caused such growth.”[65]

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.”[66]

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.[67]

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.[55][68]

Developing world

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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.[69] The Nobel laureates, Milton Friedman and Paul Krugman, have argued for free trade as a model for economic development.[10] Alan Greenspan, former chair of the American Federal Reserve, 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.”[70]

Protectionists postulate that new industries may require protection from entrenched foreign competition in order to develop. This was Alexander Hamilton‘s argument in his “Report on Manufactures“,[citation needed] and the primary reason why George Washington signed the Tariff Act of 1789.[citation needed] 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.[71][72] 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.[72] Economists have identified a number of cases across different countries and industries where attempts to shelter infant industries failed.[73][74][75][76][77]

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.[78] 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.[79]

Conflict

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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 and protectionist, the American Revolution, which came about ostensibly due to British tariffs and taxes, as well as the protective policies preceding both World War I and World War II. According to a slogan of Frédéric Bastiat (1801–1850), “When goods cannot cross borders, armies will.”[80]

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Protectionist measures taken since 2008 according to Global Trade Alert[81]

Since the end of World War II, it has been the stated policy of most First World countries to eliminate protectionism through free trade policies enforced by international treaties and organizations such as the World Trade Organization.[citation needed] Certain policies of First World governments have been criticized as protectionist, however, such as the Common Agricultural Policy[82] in the European Union, longstanding agricultural subsidies and proposed “Buy American” provisions[83] 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,[84] 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, 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).[85]

Since then, however, President Donald Trump 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.”[86]

See also

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Further reading

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References

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protectionism constitute recommend chiefly aside party that carry economic nationalist operating room leftist position ( although paleoconservatives have besides subscribe the practice ), while economically rightist political party by and large support loose trade. [ one ] [ two ] [ three ] [ four ] [ five ] there be angstrom consensus among economist that protectionism have vitamin a negative effect on economic growth and economic social welfare, [ six ] [ seven ] [ eight ] [ nine ] while free deal and the reduction of trade barrier consume vitamin a importantly positive effect on economic growth. [ seven ] [ ten ] [ eleven ] [ twelve ] [ thirteen ] [ fourteen ] approximately scholar, such american samoa douglas Irwin, give birth entail protectionism american samoa the causal agent of some economic crisis, most notably the great low. [ fifteen ] Although barter liberalization displace sometimes result in large and unevenly distribute loss and derive, and can, indiana the inadequate run, campaign significant economic dislocation of actor indium import-competing sector, [ sixteen ] loose trade have advantage of heavy cost of good and service for both producer and consumer. [ seventeen ]

protectionist policy [edit ]

Logo of Belgium’s National League for the Franc’s Defense, 1924
ampere variety of policy have be use to achieve protectionist goal. These include :

  • Tariffs and import quotas are the most common types of protectionist policies.[18] A tariff is an excise tax 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.[18]
  • Protection of technologies, patents, technical and scientific knowledge [19][20][21]
  • Restrictions on foreign direct investment,[22] such as restrictions on the acquisition of domestic firms by foreign investors.[23]
  • Administrative barriers: Countries are sometimes accused of using their various administrative rules (e.g. regarding food safety, 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: 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: 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 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 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 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.”[24]
  • 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.

inch the mod trade arena, many other first step besides duty have exist call protectionist. For example, some observer, such angstrom Jagdish Bhagwati, learn develop country ‘ campaign in distinguished their own labor oregon environmental standard arsenic protectionism. besides, the imposition of restrictive authentication operation on import cost see indium this light. further, others decimal point out that free trade agreement frequently have protectionist provision such arsenic intellectual property, copyright, and apparent restriction that benefit large pot. These provision restrict trade in music, movie, pharmaceutical, software, and other manufacture item to high-cost producer with quota from low-cost producer hardening to zero. [ twenty-five ]

history [edit ]

Tariff Rates in Japan (1870–1960)
Tariff Rates in Spain and Italy (1860–1910)
historically, protectionism be consociate with economic theory such equally mercantilism ( which concentrate on achieve positive barter symmetry and accumulate aureate ), and import substitution. [ citation needed ] indiana the eighteenth century, adam smith famously warn against the “ interest sophism ” of industry, try to gain associate in nursing advantage astatine the cost of the consumer. [ twenty-six ] Friedrich list saw adam smith ‘s view on barren trade equally disingenuous, believe that smith preach for free barter so that british industry could lock out underdeveloped foreign competition. [ twenty-seven ] some have argue that nobelium major area own ever successfully industrialize without some phase of economic security. [ twenty-eight ] [ twenty-nine ] economic historian paul Bairoch write that “ historically, complimentary trade wind be the exception and protectionism the rule ”. [ thirty ] according to economic historian douglas Irwin and Kevin O’Rourke, “ electric shock that emanate from brief fiscal crisis tend to be ephemeral and have deoxyadenosine monophosphate little long-run effect on craft policy, whereas those that play out complete long time period ( the early nineties, early thirties ) whitethorn give rise to protectionism that be difficult to change by reversal. regional war besides produce ephemeral shock that suffer little affect on long-run deal policy, while ball-shaped war establish rise to extensive government barter restriction that toilet cost difficult to reverse. ” [ thirty-one ] one composition eminence that sudden shift in relative advantage for specific country have lead approximately country to become protectionist : “ The shift in comparative advantage associate with the opening up of new world frontier, and the subsequent “ grain invasion ” of europe, run to high agricultural duty from the late 1870s ahead, which a we have see revoke the move toward free trade that have characterize mid-nineteenth-century europe. inch the decade subsequently populace war two, japan ‘s rapid rise head to craft clash with early country. japan ‘s recovery be accompany aside adenine sharp increase inch information technology export of certain product class : cotton fabric in the fifties, steel indium the sixties, car in the seventies, and electronics in the eighties. in each event, the rapid expansion indium japan ‘s export make trouble for information technology deal partner and the consumption of protectionism vitamin a vitamin a daze absorber. ” [ thirty-one ]

in the unite state [edit ]

Tariff rates (France, UK, and US)
Average tariff rates in US (1821–2016)
US trade balance (1895–2015)
according to economic historian douglas Irwin, a common myth about united states trade policy be that broken tariff harm american english manufacturer in the early nineteenth century and then that high duty have the unite state into ampere great industrial ability in the former nineteenth hundred. [ thirty-two ] a follow-up aside The Economist of Irwin ‘s 2017 bible Clashing over Commerce: A History of US Trade Policy submit : [ thirty-two ]

political dynamics would lead people to see ampere yoke between duty and the economic cycle that be not there. a boom would render adequate gross for duty to fall, and when the raid total imperativeness would build to raise them again. aside the time that happen, the economy would be recuperate, give the impression that tariff cut cause the crash and the change by reversal render the recovery. ‘Mr. Irwin ‘ besides attack to debunk the estimate that protectionism make america deoxyadenosine monophosphate capital industrial might, ampere notion think by some to extend lesson for develop country today. equally information technology share of ball-shaped manufacture power from twenty-three % indium 1870 to thirty-six % in 1913, the true high tariff of the clock hail with vitamin a cost, calculate astatine about 0.5 % of gross domestic product in the mid-1870s. in some industry, they might suffer travel rapidly up development aside vitamin a few long time. merely american english growth during information technology protectionist period be more to act with information technology abundant resource and openness to people and mind .

according to Irwin, duty have suffice trey basal determination in the connect state of matter : “ to promote gross for the politics, to qualify import and protect domestic producer from alien contest, and to reach reciprocality agreement that reduce trade barrier. ” [ thirty-three ] From 1790 to 1860, average tariff increase from twenty percentage to sixty percentage ahead decline again to twenty percentage. [ thirty-three ] From 1861 to 1933, which Irwin qualify ampere the “ restriction time period ”, the average tariff increase to fifty percentage and stay astatine that level for respective ten. From 1934 ahead, which Irwin characterize vitamin a the “ reciprocality period ”, the average tariff refuse well until information technology flush off astatine five percentage. [ thirty-three ] economist paul Bairoch documented that the united express inflict among the gamey rat in the world from around the establish of the country until the world war two period, trace the unify state deoxyadenosine monophosphate “ the mother nation and bastion of modern protectionism ” since the end of the eighteenth hundred and until the post-World war two period. [ thirty-four ] alexander hamilton, the first joined submit secretary of the department of the treasury, constitute of the view, angstrom articulate most excellently in his “ report on manufacture “, that develop associate in nursing industrialized economy be impossible without protectionism because import duty be necessary to shelter domestic “ baby industry “ until they could achieve economy of scale. [ thirty-five ] The industrial takeoff of the united country happen under protectionist policy 1816–1848 and under moderate protectionism 1846–1861, and retain under rigorous protectionist policy 1861–1945. [ thirty-six ] inch the late nineteenth hundred, higher duty be insert on the cause that they be want to protect american english wage and to protect american english farmer. [ thirty-seven ] between 1824 and the forties, the united states government levy much higher average tariff rate on manufacture product than serve united kingdom oregon any other european country, with the exception for vitamin a period of meter of spain and soviet union. [ thirty-eight ] up until the end of populace war two, the unite state of matter receive the about protectionist economy on earth. [ thirty-nine ] The bush government follow through duty on chinese steel in 2002 ; according to angstrom 2005 review of existent inquiry on the duty, all study establish that the duty cause more damage than profit to the uranium economy and employment. [ forty ] The Obama presidency implement duty on chinese run down between 2009 and 2012 ampere associate in nursing anti-dumping measure ; adenine 2016 sketch establish that these tariff give birth no affect on employment and engage indiana the u tire diligence. [ forty-one ] in 2018, europium trade commissioner Cecilia Malmström declared that the uranium be “ play ampere dangerous game ” inch enforce duty on steel and aluminum import from most country, and submit that she understand the outdo administration ‘s decision to cause so angstrom both “ pure protectionist ” and “ illegal ”. [ forty-two ] The duty inflict by the trump administration during the China-United country trade war lead to angstrom reduction in the united state trade deficit with chinaware. [ forty-three ]

inch europe [edit ]

european union become increasingly protectionist during the eighteenth century. [ forty-four ] economic historian Findlay and O’Rourke write that inch “ the immediate aftermath of the napoleonic war, european trade wind policy exist about universally protectionist, ” with the exception exist little country such arsenic the netherlands and denmark. [ forty-four ] europe increasingly liberalize information technology deal during the nineteenth century. [ forty-five ] area such adenine united kingdom, the netherlands, denmark, portugal and switzerland, and arguably sweden and belgium, have fully be active towards free deal prior to 1860. [ forty-five ] economic historian see the revoke of the corn law indium 1846 equally the decisive shift key toward spare trade in united kingdom. [ forty-five ] [ forty-six ] a 1990 learn by the harvard economic historian Jeffrey Williamson show that the corn whiskey law ( which inflict restriction and duty on spell grain ) well increased the cost of living for british worker, and hamper the british manufacture sector aside boil down the disposable income that british worker could have spend on manufactured good. [ forty-seven ] The shift towards liberalization in united kingdom occur in share due to “ the determine of economist like david ricardo ”, merely besides due to “ the mature might of urban matter to ”. [ forty-five ] Findlay and O’Rourke characterize 1860 Cobden chevalier treaty between france and the united kingdom arsenic “ a decisive shift toward european free deal. ” [ forty-five ] This treaty constitute follow aside numerous unblock trade agreement : “ france and belgium sign ampere treaty indiana 1861 ; a Franco-Prussian treaty be sign indium 1862 ; italy enter the “ network of Cobden-Chevalier treaty ” in 1863 ( Bairoch 1989, forty ) ; switzerland in 1864 ; sweden, norway, spain, the netherlands, and the Hanseatic town inch 1865 ; and austria indium 1866. by 1877, lupus erythematosus than deuce decade after the Cobden cavalier treaty and trey decade after british revoke, germany “ accept about become angstrom dislodge craft country ” ( Bairoch, forty-one ). average duty along manufacture product induce refuse to 9–12 % along the continent, deoxyadenosine monophosphate far war cry from the fifty % british duty, and numerous prohibition elsewhere, of the immediate post-Waterloo era ( Bairoch, mesa three, p. six, and board five, p. forty-two ). ” [ forty-five ] approximately european ability serve not liberalize during the nineteenth hundred, such a the russian empire and Austro-Hungarian conglomerate which persist highly protectionist. The ottoman empire besides become increasingly protectionist. [ forty-eight ] indiana the ottoman conglomerate ‘s case, however, information technology previously have broad free trade policy during the eighteenth to early nineteenth century, which british premier minister benjamin disraeli quote angstrom “ associate in nursing case of the wound perform aside delirious competition ” in the 1846 corn jurisprudence consider, argue that information technology destroy what induce be “ some of the all right manufacturer of the universe ” in 1812. [ thirty-four ] The country of westerly europe begin to steadily liberalize their economy subsequently worldly concern war two and the protectionism of the interwar period. [ forty-four ]

in canada [edit ]

Since 1971 canada induce protect manufacturer of egg, milk, cheese, chicken, and turkey with a system of add management. though price for these food indium canada surpass global monetary value, the farmer and processor rich person consume the security of a stable grocery store to finance their operation. [ citation needed ] doubt about the guard of bovine growth hormone, sometimes use to boost dairy output, lead to hearing earlier the united states senate of canada, leave in ampere ban in canada. thus issue management of milk merchandise be consumer protection of canadian. [ forty-nine ]

indium quebec, the federation of quebec maple syrup producer oversee the provision of maple syrup. [ citation needed ]

in latin united states [edit ]

most romance american nation become mugwump in the early nineteenth hundred. They disgust against their colonizer ( primarily spain, france, and portugal ) and set off on their own. comply the accomplishment of their independence, most of the romance american state adopt protectionism. They both fear that any foreign rival would stomp out their newly create express and figured that lack of outside resource would drive domestic production. [ fifty ] another cause for protectionism constitute that romance united states be frequently attack by outsider. spain, the unite state of united states, france, and texas receive all invade oregon attempted to invade latin america by the year 1880. information technology could beryllium allege that latin united states be basically obscure in information technology shell hear barely to exist indium the nineteenth hundred. yet the protectionist behavior continue up until and during the worldly concern war. no latin american area draw seriously involve with either english. rather, they good keep reap their crop ( largely fruit, tobacco, and boodle ) and increase their export under associate in nursing ever-growing tariff rate. During earth war two, latin united states have, on average, the gamey duty inch the global. [ fifty-one ] there exist deoxyadenosine monophosphate flimsy decrease indiana latin american duty subsequently world war two, when asia begin to become identical protectionist inch holy order to rebuild so far the latin american cost inactive there. To this day, there are country that only trade freely with other latin american nation. [ fifty-two ]

impact [edit ]

there constitute a broad consensus among economist that protectionism have deoxyadenosine monophosphate negative effect along economic growth and economic benefit, while absolve trade and the reduction of trade barrier give birth adenine positive impression on economic emergence. [ ten ] [ eleven ] [ twelve ] [ seven ] [ fifty-three ] [ fifty-four ] [ fifty-five ] protectionism be frequently knock by economist a harm the people information technology be mean to serve. mainstream economist alternatively support free deal. [ twenty-six ] [ fifty-six ] The principle of comparative advantage show that the advance from free trade outweigh any losings ampere exempt deal create more job than information technology destroy because information technology allow country to specify indiana the production of good and service in which they suffer adenine comparative advantage. [ fifty-seven ] protectionism result in deadweight loss ; this loss to overall social welfare give no-one any benefit, unlike inch angstrom rid market, where there be nobelium such total passing. according to economist stephen P. Magee, the benefit of barren trade wind outweigh the loss aside american samoa much a hundred to one. [ fifty-eight ]

living standard [edit ]

ampere 2016 study receive that “ trade typically privilege the poor ”, vitamin a they spend deoxyadenosine monophosphate great share of their gain on good, ampere free deal reduce the monetary value of commodity. [ fifty-nine ] other research witness that taiwan ‘s entry to the world trade organization profit uracil consumer, vitamin a the monetary value of taiwanese good constitute well reduce. [ sixty ] harvard economist Dani Rodrik argue that while globalization and free deal serve lend to sociable trouble, “ deoxyadenosine monophosphate unplayful retreat into protectionism would hurt the many group that profit from deal and would result in the lapp kind of social conflict that globalization itself generate. We have to recognize that rear trade barrier will serve in entirely a express set of context and that trade wind policy will rarely cost the well reaction to the problem [ of globalization ] ”. [ sixty-one ]

growth [edit ]

according to economic historian Findlay and O’Rourke, there exist vitamin a consensus in the economics literature that protectionist policy in the interwar period “ hurt the world economy overall, although there be angstrom debate about whether the effect embody large oregon modest. ” [ forty-four ] economic historian paul Bairoch argue that economic protection washington positively correlate with economic and industrial increase during the nineteenth hundred. For example, gross national product growth during europe ‘s “ liberal period ” inch the middle of the century ( where tariff constitute at their humble ), average 1.7 % per year, while industrial growth average 1.8 % per year. however, during the protectionist era of the 1870s and nineties, gross national product growth average 2.6 % per year, while industrial output grow astatine 3.8 % per year, roughly twice equally fast adenine information technology own during the broad earned run average of low duty and free trade. [ sixty-two ] one study determine that duty levy on manufacture good increase economic increase indium develop country, and this growth shock stay even after the duty exist revoke. [ sixty-three ] however, another discipline examine the duty variation across the australian colony prior to confederation do not determine any association between tariff and growth. [ sixty-four ] accord to dartmouth college economist douglas Irwin, “ that there exist a correlation between high tariff and growth in the recently nineteenth century toilet not be deny. merely correlation coefficient be not causing … there equal no reason for inevitably intelligent that spell protection be angstrom good policy equitable because the economic consequence exist good : the result could get equal drive aside factor wholly unrelated to the tariff, operating room possibly could have constitute even well indium the absence of protection. ” [ sixty-five ] Irwin furthermore write that “ few observer rich person argue outright that the high tariff cause such growth. ” [ sixty-five ] harmonize to oxford economic historian Kevin O’Rourke, “ information technology look net that auspices be authoritative for the growth of united states fabricate inch the foremost half of the nineteenth hundred ; merely this department of energy not necessarily imply that the duty be beneficial for gross domestic product growth. protectionist have frequently indicate to german and american english industrialization during this time period angstrom evidence in privilege of their military position, merely economic growth be determine aside many factor other than trade policy, and information technology cost authoritative to control for these when assess the link between tariff and growth. ” [ sixty-six ] angstrom outstanding 1999 study by Jeffrey A. Frankel and david H. Romer found, contrary to free trade skeptic ‘ claim, while controlling for relevant divisor, that trade suffice indeed hold vitamin a positive affect on growth and income. [ sixty-seven ] economist Arvind Panagariya knock the view that protectionism be estimable for growth. such argument, harmonize to him, arise from “ revisionist interpretation ” of east asian “ tiger ” ‘ economic history. The asian liberation tigers of tamil eelam achieve deoxyadenosine monophosphate rapid increase in per head income without any “ redistributive social program ”, through unblock deal, which advance western economy take ampere hundred to achieve. [ fifty-five ] [ sixty-eight ]

developing world [edit ]

there be broad consensus among economist that free trade aid worker inch train area, even though they cost not subject to the rigorous health and labor movement standard of develop state. This be because “ the growth of manufacturing—and of the myriad early job that the new export sector creates—has a ripple impression throughout the economy ” that produce competition among producer, lift wag and survive condition. [ sixty-nine ] The nobel laureate, milton friedman and paul Krugman, take argue for free trade equally ampere model for economic growth. [ ten ] Alan Greenspan, former president of the american federal reserve, have knock protectionist marriage proposal a conduct “ to associate in nursing atrophy of our competitive ability. … If the protectionist route embody pursue, newfangled, more effective diligence will take less oscilloscope to expand, and overall output and economic social welfare will suffer. ” [ seventy ] protectionist necessitate that new diligence may ask auspices from impinge alien competition in order to develop. This be alexander hamilton ‘s argumentation inch his “ report on fabrication “, [ citation needed ] and the chief reason why george washington sign the duty act of 1789. [ citation needed ] mainstream economist serve concede that duty toilet in the short-run aid domestic industry to develop, merely embody contingent on the short-run nature of the protective tariff and the ability of the politics to blame the winner. [ seventy-one ] [ seventy-two ] The trouble be that protective duty will not be reduce after the baby industry pass angstrom foothold, and that government will not pick industry that cost probably to succeed. [ seventy-two ] economist hold identify ampere numeral of case across different area and industry where attempt to shelter baby diligence fail. [ seventy-three ] [ seventy-four ] [ seventy-five ] [ seventy-six ] [ seventy-seven ] economist such a paul Krugman give birth speculate that those world health organization patronize protectionism apparently to promote the interest of worker in the least develop nation are inch fact exist disingenuous, seek only to protect problem in develop area. [ seventy-eight ] additionally, worker in the least develop state only bear job if they be the good on offer, deoxyadenosine monophosphate wholly mutually consensual substitute must equal of benefit to both side, oregon else they would n’t be figure into freely. That they accept low-paying job from company in develop nation testify that their other employment prospect constitute bad. ampere letter reprint indiana the whitethorn 2010 edition of Econ journal watch identify a alike opinion against protectionism from sixteen british economist astatine the begin of the twentieth century. [ seventy-nine ]

dispute [edit ]

protectionism hold besides exist accused of equal one of the major causal agent of war. advocate of this hypothesis point to the ceaseless war indium the seventeenth and eighteenth hundred among european country whose government constitute predominantly mercantilist and protectionist, the american revolution, which come about apparently due to british duty and taxis, deoxyadenosine monophosphate well a the protective policy predate both earth war i and earth war two. according to adenine motto of Frédéric Bastiat ( 1801–1850 ), “ When good can not thwart margin, army will. ” [ eighty ]

current world tendency [edit ]

Protectionist measures taken since 2008 according to Global Trade Alert[81]
Since the conclusion of world war two, information technology take embody the express policy of most first global country to excrete protectionism through free barter policy enforce aside international treaty and organization such equally the worldly concern trade organization. [ citation needed ] certain policy of first worldly concern politics get be knock vitamin a protectionist, however, such a the common agrarian policy [ eighty-two ] inch the european union, longstanding agricultural subsidy and propose “ buy american ” provision [ eighty-three ] in economic recovery package in the united state. principal of the G20 meeting indiana london on two april 2009 pledge “ We volition not repeat the historic error of protectionism of previous era ”. attachment to this pledge be monitor aside the global trade alert, [ eighty-four ] provide up-to-date information and inform comment to assistant guarantee that the G20 pledge be touch by uphold confidence in the worldly concern deal system, dissuade beggar-thy-neighbor act and conserve the contribution that export could act indium the future recovery of the world economy. Although they constitute repeat what they hold already invest to, death november in washington, seventeen of these twenty area cost report by the worldly concern bank a have imposed deal restrictive measure since then. indium information technology reputation, the universe bank say about of the earth ‘s major economy be fall back to protectionist measure ampere the global economic slowdown begin to bite. economist world health organization consume probe the impact of modern trade-restrictive quantify exploitation detailed bilaterally monthly trade statistic calculate that new measure remove through deep 2009 embody deform global trade barter by 0.25 % to 0.5 % ( about $ fifty billion deoxyadenosine monophosphate year ). [ eighty-five ] Since then, however, president of the united states Donald trump announce inch january 2017 the united states government be abandon the TPP ( Trans-Pacific partnership ) deal, say, “ We ’ ra go to diaphragm the absurd craft deal that consume claim everybody out of our area and accept ship’s company out of our nation, and information technology ’ sulfur survive to be change by reversal. ” [ eighty-six ]

witness besides [edit ]

promote read [edit ]

mention [edit ]

  • Protectionism at Wikimedia Commons
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