protectionism

(redirected from Trade protectionism)
Also found in: Dictionary, Thesaurus, Encyclopedia.

Protectionism

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.

Protectionism

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

protectionism

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.

protectionism

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

protectionism

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 ?
Keywords: EU, G20, trade policy, trade protectionism, World Trade Organization (WTO), trade agreements
Under the America First platform, Trump has pushed for strong trade protectionism and a retrenchment from the free trade agenda supported under Obama.
Global efforts to battle trade protectionism need to be reinforced to help shield the fragile economic recovery across the world.
"The temptation arises of trade protectionism, currency wars, artificially depressing the exchange rate of national currencies." The G7 represents rich nations within the G20, a broader forum that includes emerging markets - led by China, India, Russia and Brazil - and accounts for nine-tenths of the global economy.
Efforts to reduce trade protectionism could move a step closer if an agreement between the US and EU is thrashed out.
"Weak recovery of the global economy and persistent high levels of unemployment are continuing to test the political resolve of G-20 governments to resist trade protectionism. The past seven months have not witnessed any slowdown in the imposition of new trade restrictions," says the report.
"China is deeply concerned about the decision, which does not tally with facts and highlights the United States' strong tendency for trade protectionism," it said on its website.
During the meeting, the ministers are also expected to reaffirm the need to resist trade protectionism and seek to further facilitate the flow of goods, such as through the reduction of transaction costs, according to Japanese officials.
Malmstrom told MEPs that constructing exit strategies from current stimulus packages, fighting unemployment, resisting trade protectionism, reforming international financial institutions, such as the International Monetary Fund, and reaching a deal at Copenhagen - especially on financing climate change - were all top of the agenda.
"China strongly condemns this grave act of trade protectionism by the US," Yao Jian, a spokesman for China's ministry of commerce, said in a statement issued on the ministry's website.
"Just as the World Bank is reporting on increased trade protectionism in the world, U.S.
South Korean President Lee Myung-bak reiterated the importance of international cooperation in his keynote speech at the G20 summit held on November 15 to 16 in Washington, citing public fears over the possible spread of trade protectionism. In his speech, President Lee set forth visions for overcoming the current financial turmoil.