Protectionism is an economic policy that favors domestic producers by imposing import barriers and subsidies. It aims to protect domestic industries from foreign competition, but can lead to higher prices and less innovation. Proponents argue it can help fledgling industries and improve working conditions.
Protectionism is an economic policy aimed at favoring national producers of goods and services. In a nation with protectionist policies, domestic manufacturers are insulated from competing against foreign firms by a variety of import barriers. They can also be supported directly by the government with the use of subsidies. The opposite of protectionism is free trade, where goods are allowed to cross borders freely. Many nations support free trade and would prefer to see protectionist economic policies banned altogether. Signatories to the General Agreement on Tariffs and Trade (GATT) and members of the World Trade Organization (WTO), for example, are typically proponents of free trade.
The rationale behind protectionism is that domestic industries may suffer when faced with foreign imports that are available at cheaper prices due to lower labor costs, more readily available natural resources, or foreign government subsidies that help producers to keep their costs low. By imposing strict tariffs and import quotas, a government can theoretically increase the market for domestic goods, essentially closing the market to foreign manufacturers. This in turn is designed to benefit home economics.
When import restrictions are accompanied by government subsidies to domestic companies and government export subsidies to encourage exports of domestic products, protectionism is bound to benefit domestic companies. However, this isn’t always the case. Thanks to the lack of competition, companies may have less interest in developing innovative new products while keeping old inventions and technologies. They can also face export barriers, because foreign countries often respond to protectionism with their own protectionist policies.
Individual citizens may also suffer from protectionism, as they may find that the prices of goods and services are inflated. Without cheap foreign competition, companies can afford to charge what they want for their goods and services, and that means consumers can pay much higher prices than people in other regions of the world pay. They can also challenge lack of innovation or lobby for greater freedom of choice among products.
Proponents of protectionism argue that it can help fledgling industries by insulating them from the open market until they are strong enough to function independently. Protectionism also theoretically protects domestic employment by encouraging firms to hire nationwide, and can be used to promote wages and better employee benefits. Proponents point out that protectionism can also be used to pressure foreign nations to improve conditions for their workers.
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