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Governmental restrictions and policies placed on international trade to protect the interests of local businesses, jobs, and reduce competition is called Protectionism.
A Little More on What is Protectionism
There are four different methods of enforcing Protectionism:
Tariffs: Import duties or tariffs are levied at three different levels by the government who’s also responsible for collecting these monies.
- Scientific Tariffs – Price of imported goods costs the end user more than locally produced goods.
- Peril Point Tariffs – When local industry verticals are failing to keep up with international competitors, these tariffs are imposed to make it costlier for international firms to trade in local markets.
- Retaliatory Tariffs – Imposed to balance out excessive import duties being levied by other trading countries.
Import Quotas: These are quotas imposed on the number of goods that can be imported within a financial period. This results in demand exceeding supplies for such products, allowing local traders to meet the deficit. Import Quotas can also be implemented to prevent the practice of dumping. An Embargo is the most severe of Import Quotas with a complete ban on the import of certain goods.
Product Standards: These rules are put into place to avoid importing substandard goods and materials. They can also be manipulated to muscle out or embargo certain products that are giving stiff competition to local businesses. For e.g. the quality standards required to import a regular wheel of cheese might border on the ridiculous, making it hard for international manufactures to meet such stringent requirements, reducing overall imports of the product, facilitating local businesses to address the unmet demand.
Government Subsidies: Providing subsidised resources to local businesses, like discounted land rates, reduced service charges, etc., also facilitates the local business in diverting their resources towards beating the competition. The heavily subsidised, local automotive industry in China is an example of such governmental Protectionism in the form of subsidies, accorded to local industries.
Merits and Demerits of Protectionism
Critics of Protectionism argue that it’s bad for economic growth, leads to rise in prices over the long term, stifles free trade, and ends up costing more to the people it’s intended to protect. Those in favour of Protectionism believe that it’s better for local jobs and economies, and provides them with a competitive advantage over international firms.
References for Protectionism
Academic Research on Protectionism
Local protectionism and regional specialization: evidence from China’s industries, Bai, C. E., Du, Y., Tao, Z., & Tong, S. Y. (2004). Journal of international economics, 63(2), 397-417. This journal takes a look at Protectionism and its effect on the regional industries in China.
An economic justification of protectionism, Hagen, E. E. (1958). The Quarterly Journal of Economics, 72(4), 496-514. This article presents the case in favour of Protectionism via an economic lens.
The political economy of protectionism, Baldwin, R. E. (1982). In Import competition and response (pp. 263-292). University of Chicago Press. This paper takes a look at economists growing interest in public choice, and the application of economics to political science in the Protectionism scenario.
Pressures for protectionism: An empirical analysis, Takacs, W. E. (1981). Economic Inquiry, 19(4), 687-693. These paper examines the factors that lead to Protectionism measures by governments with the help of empirical data.
How costly is protectionism?, Feenstra, R. C. (1992). Journal of Economic Perspectives, 6(3), 159-178. This paper examines the cost of Protectionism, its influence on the performance of regional economies from the U.S. perspective.
Foreign capital and protectionism, Beladi, H., & Marjit, S. (1992). Canadian Journal of Economics, 233-238. This journal analyses the relationship between growth in the export processing zone in a protectionary scenario with the import of resource intensive goods.
An economic theory of protectionism, tariff bargaining, and the formation of customs unions, Johnson, H. G. (1965). Journal of political economy, 73(3), 256-283. This articles discusses the theory of tariffs in light of protectionism and custom union formations.
Up the average cost curve: Inefficient entry and the new protectionism, Horstmann, I. J., & Markusen, J. R. (1986). Journal of International Economics, 20(3-4), 225-247. This article examines the behavior of a protectionist economy with the help of a two-country model.
The International Trade Commission and the politics of protectionism, Hansen, W. L. (1990). American Political Science Review, 84(1), 21-46. This paper studies the regulation of U.S. manufactured goods in the international market and the politics of protectionism at play.
Agricultural multifunctionality in the WTO—legitimate non-trade concern or disguised protectionism?, Potter, C., & Burney, J. (2002). Journal of Rural Studies, 18(1), 35-47. This paper examines whether agricultural multifunctionality in the international trading scenario is a faint cover for Protectionist practices.
Regulatory protectionism and the law of international trade, Sykes, A. O. (1999). The University of Chicago Law Review, 1-46. This paper discusses international trade laws and Protectionism to regulate competition with a focus on U.S. law.
The dynamics of negotiated protectionism, Aggarwal, V. K., Keohane, R. O., & Yoffie, D. B. (1987). American Political Science Review, 81(2), 345-366. This paper analyses the different implementation methods employed by the U.S. government vis-a-vis Protectionism.
Trade, protectionism and the future of welfare capitalism, Ruggie, J. G. (1994). Journal of International Affairs, 1-11 This paper examines the relationship between international trade, protectionism, and its impact on welfare capitalism in the long run.