Protectionism - Term Overview

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Protectionism is a commercial policy established by a government that aims to protect national industry against foreign competition with the application of tariffs or any other type of import restriction.

In this way, protectionism supposes an international trade with impediments, contrary to a situation of free trade or free market. In free market situations, it's possible that the national industry is harmed, since it could be cheaper for a country to buy abroad ( import a product ) than to produce it internally. This has the risk that the national production of said good ends up disappearing (and in turn, the jobs related to this industry). To prevent this from happening, protectionist measures can be carried out. However, protectionist measures can harm competition, making domestic products more expensive and sometimes even of poorer quality.

Protectionism has had different moments of boom and bust throughout history. In general, in periods of crisis or slowdown in the economy, protectionist temptations reappear. Examples of this are the years after the Great Depression; moment in which the United States applied the so-called Smoot-Hawley tariff, which raised tariffs on imported products to reduce the effects of the 1929 depression within the country.

Advantages of protectionism

Among the advantages of protectionism can be found the following:

- Argument of the nascent industry: It protects the new national industries, which without this help could not possibly start operating, since the costs they would have to incur would be too high. This protection is usually given until the industry is mature enough to be able to compete in world markets.
- Promotes national industrialization: At the same time, it increases national employment by increasing production within the country.
- Protection of strategic industries for the country: Perhaps a country wants to be specialized in a certain industry since it considers it strategic and protects it through protectionism.

Disadvantages of protectionism

For its part, below we show the main disadvantages:

- Excessive price rise: By limiting the entry of foreign products, national companies could take advantage of this situation to monopolize the market and apply an excessive price increase.
- Poor quality products: By encouraging the consumption of national products, you make consumers buy products that may be of poorer quality or more expensive than what could be offered if there were no protectionism.

Most used protectionist measures

There are many types of measures to carry out protectionist policies, these are the most important:

- Tariffs: it's a tax that is established on all imports that enter the country, and thus become more expensive. Export tariffs can also be established, although this is rare.
- Import quotas: Quantitative limitation of the number of units that can be imported.
- Export subsidies: The government pays its companies to increase their exports.
- Minimum domestic content: A requirement that a percentage of the content of a product must be domestic.
- Voluntary export restrictions: A country restricts the export of products, primarily with the intention of avoiding tariffs or quotas imposed by the trading partner.
- Non-tariff or administrative barriers: An attempt is made to put technical, legal or other obstacles that discourage imports.

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