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Notion that governments should protect domestic industry from import competition by means of tariffs, quotas, and other trade barriers.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.


Any government policy or regulation that restricts international trade. Examples include import quotas, which set a maximum number of imports for a certain good over a given period of time, and import substitution, in which the state subsidizes businesses and industries to make domestic goods less expensive. By far the most common example, however, is the tariff, which is a tax on imports. Proponents of protectionism argue that it encourages domestic production of goods and helps working class people, while critics contend that it hurts the people it aims to help by discouraging competition, which may drive down prices. The balance of protectionism and free trade is a controversial topic regarding the government's role in international trade. See also: General Agreement on Tariffs and Trade.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved


The establishment of barriers to the importation of goods and services from foreign countries in order to protect domestic producers. Protectionism generates higher consumer prices. It is also likely to penalize domestic exporters because foreign countries are apt to retaliate with trade barriers of their own.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.


the measures taken by a country to protect certain of its domestic industries from foreign competition and, on occasion, to assist the country's balance of payments. See TARIFF, QUOTA, DUMPING, LOCAL CONTENT RULES, SUBSIDIES, FREE TRADE, WORLD TRADE ORGANIZATION.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson


a deliberate policy on the part of governments to erect trade barriers such as TARIFFS and QUOTAS in order to protect domestic industries from foreign competition.

While there are arguments for protection, especially appealing to sectional interests, protectionism cannot, for the most part, be vindicated as being in the best interests of the national and international community. Take, for example, the often cited contention that tariffs are needed to equalize wage rates between countries. The UK and US textile industries complain that their domestic positions are undermined by foreign suppliers who employ ‘cheap labour’. It should be noted, however, that for the economy as a whole, high wage rates are the result, not the cause, of productive efficiency - other industries successfully meet foreign competition in both domestic and foreign markets despite higher wages. This is because they rank higher in the order of COMPARATIVE ADVANTAGE. Protection of industries that come low in the order of comparative advantage distorts the industrial ranking and leads to inefficient resource utilization. Foreign competition would force contraction of the textile industries, and the resources released from it could then be devoted to products in which the country has a comparative advantage.

Protection might be necessary, it is suggested, in the short term to facilitate an orderly restructuring of industries (particularly where manpower resources are highly localized), but there is the danger that such protection might become permanent in the face of vested interests.

Other arguments for protection, while superficially appealing, can usually be achieved more effectively by alternative means. Thus, selective tariffs and quotas may assist in restoring BALANCE-OF-PAYMENTS EQUILIBRIUM but distort the ordering of industries by comparative advantage. By contrast, aggregate fiscal and monetary policies and exchange-rate adjustments affect all foreign transactions.

There are, however, some seemingly respectable arguments for protection. From the viewpoint of the welfare of the world as a whole, the most popular claim made for tariffs, etc., is the so-called INFANT-INDUSTRY argument. Protection can be an effective means of stimulating the development of an industry that is well suited to a country (in terms of potential comparative advantage) but that finds it impossible to get started unless it is protected from imports. Over time, suitably protected, such an industry is able to acquire internal economies of scale (i.e. lower costs through exploiting a larger domestic market) and to take advantage of various external economies (a well-trained labour force or the ‘learning-by-doing’ effect). Eventually the new industry is able to become equally or more efficient than its older competitors. The tariff can then be removed, leaving behind a viable and competitive industry.

Such temporary protection of industries does not conflict with the goal of free traders: maximum specialization on the basis of comparative advantage. It is only through the temporary equalization of competitive conditions that the industry is able to reach that stage of development that allows it to fully realize its potential.

There are problems, however. Industries are frequently selected for protection not on the basis of a favourable comparative advantage but for nationalistic reasons (e.g. diversification of the economy); ‘infant industry’ becomes a slogan to justify promiscuous protection without regard to merit. The protection afforded may be over-excessive and continue for longer than is strictly necessary.

In some circumstance, tariffs can be employed to improve a country's TERMS OF TRADE by forcing down prices in exporting countries. This applies especially to major importers who are large enough to exercise buying power. It is to be noted, however, that the gain from lower-priced imports may be offset by two adverse effects of tariffs: their diversion of resources to less productive uses and the fact that trade partners are likely to retaliate by imposing tariffs of their own. See also IMPORT RESTRICTIONS, NOMINAL RATE OF PROTECTION, EFFECTIVE RATE OF PROTECTION, BEGGAR-MY-NEIGHBOUR POLICY, MULTI-FIBRE ARRANGEMENT, DUMPING, LOCAL CONTENT RULE, WORLD TRADE ORGANIZATION.

Collins Dictionary of Economics, 4th ed. © C. Pass, B. Lowes, L. Davies 2005
References in periodicals archive ?
Overall, the third wave of tariff reform brought the industry rich information on customer responsiveness to time-varying pricing.
The former is of course the sole reason why electricity tariff reform warrants discussion at all.
In the next subsection, we compare the welfare and market access effects of a tariff reform alone with those of a coordinated tariff-tax reform.
Due to the loss in revenue from the tariff reform, the first and major casualty on the expenditure side has been the public investment in physical and social infrastructure (Roubini and Sachs, 1989; World Bank, 1988).
An editorial from 1913, reprinted in The New York Times on the Presidency: 1853-2008 (CQ Press), evaluated Woodrow Wilson's "innovation" of lecturing to Congress about tariff reform in person.
The big issue had been the threat to free trade, which was championed by the Liberals, versus tariff reform, proposed by the Unionists.
The biography provides a detailed reconstruction of Underwood's political positions and legislative activities over the course of his career, including his opposition to the Ku Klux Klan, anti-labor views, work on tariff reform, and opposition to prohibition.
In a number of countries, authorities have now accepted that instantaneous direct feedback through smart meters combined with frequent, accurate billing (electricity tariff reform) is an effective basis for sustained electricity-demand reduction in households and commercial buildings.
"Trade Adjustment and Human Capital Investments: Evidence from Indian Tariff Reform"--Eric Edmonds and Nina Pavcnik, Dartmouth College and NBER, and Petia Topalova, International Monetary Fund
He moved on to the national stage, bestrode it, and then let his talents run away into the sands of Liberal Unionism and Tariff Reform. As the Tory Lady Bracknell dismissively observed of the Liberal Unionists: 'Yes, they dine with us--or come in the evenings, at any rate'.
Mauritius' 2005/06 budget is primarily built around' one new innovative concept--becoming over time a duty-free island--and is clearly aimed at changing the mood of the country with a bold and substantial customs tariff reform which should eventually translate into lower customer prices.
Mr Vaile said apart from working on agricultural tariff reform, many countries that had held back on making an offer on services reform had now committed to make one by the end of May.