Protectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow (according to proponents) "fair competition" between imports and goods and services produced domestically. Trade protectionism is used by countries when they think their industries are being damaged by unfair competition by other countries. It is a defensive measure, and it is usually politically motivated. It can often work, in the short run. However, in the long run it usually does the opposite of its intentions. It can make the country, and the industries it is trying to protect, less competitive on the global marketplace. Countries use a variety of ways to protect their trade. One way is to enact tariffs, which tax imports. This immediately raises the price of the imported goods, and therefore less competitive when compared to locally produced goods. This works especially well for a country like the U.S., which imports a lot of its goods.
The most famous example is the Smoot-Hawley Tariff of 1930. It was originally designed to protect farmers from agricultural imports from Europe, which was stepping up farming after the destruction of World War I. However, by the time the bill made it through Congress, it had slapped tariffs on many more imports. As so often happens with tariffs, other countries retaliated. This tariff war restricted global trade, and was one reason for the extended severity of the Great Depression.
A second way of protecting trade is when the government subsidizes local industries with tax credits or even direct payments. This again lowers the price of locally produced goods and services. It works even better than tariffs because now the goods are cheaper even when shipped overseas. This works well for the U.S., but even better for countries that rely mainly on exports.
A third method is by imposing quotas on imported goods....
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