Protectionism is the economic policy of restraining trade between nations, through methods such as tariffs on imported goods, restrictive quotas , a variety of restrictive government regulations designed to discourage imports and anti-dumping laws in an attempt to protect domestic industries in a particular nation from foreign take-over or competition. This is closely aligned with anti-globalization, and contrasts with free trade, where no artificial barriers to entry are instituted.
Theory vs. Facts: Side Effects
The theoretical case for trade protection rests on market failures that can be corrected by government intervention.
- If learning-by-doing is the key for success, a firm may become internationally competitive only if it acquires extensive experience in production. However, this would mean that the firm would lose a great deal of money while trying to achieve the said level of experience. Thus, government help might be necessary to give the firm a start.
- A mining enterprise will be profitable only if a railway firm is established or vice versa. The government could help coordinate the two firms' business relationship.
The above-given examples might justify the government intervention. The real question is whether such theoretical possibilities are important in practice.
At this point, we should consider that competition boosts efficiency and protectionism is likely to have the effect of corruption in the economy.
Supporters of protectionism claim that keeping out foreign goods will save jobs, giving suffering domestic industries a chance to recover and prosper, and reduce the trade deficits.
On the contrary, protectionism has severe side effects such as higher prices, higher taxes, hike in unemployment rates and debt crisis which increases the possibility of a collapse of the world banking systems.
Protectionism raises taxes by imposing high taxes on imported goods. The imposition of... [continues]
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