protectionism

protectionism The attempt to protect domestic industry or agriculture, through a series of import tariffs, from foreign competition. There have been three central reasons for the introduction of protective tariffs. First, protection has been a way of raising government revenue. Second, throughout the twentieth century it has been used by populists as part of a wider, nationalist rhetoric which extolled the virtues of the home country against supposed ‘rivals’ abroad. Third, it came to be seen as a genuinely useful policy in cases when domestic industry was nascent and would otherwise have been swamped by superior industrial goods from more developed countries abroad, or in times of economic difficulty. Thus, while these factors were usually effective in combination, in Europe the first and second motives caused several protectionist waves before World War I, while the third reason was the main factor behind the heavy protectionism after World War I.

Its fundamental flaw has been twofold. First, it makes economic sense for a country only if other countries do not retaliate by imposing protective tariffs themselves. In the 1930s, one of the fundamental causes of the Great Depression was the existence of high protective tariffs in every country, which drastically reduced world trade. The second, even greater problem, is that it is divisive by its very nature. Protection of domestic, more expensive goods works only through raising the price of cheaper, imported goods. This leads to higher prices, which is always resented by those consumers whose jobs are not safeguarded through protection. Hence, protectionism always involves a choice among policy-makers about which groups to favour at the expense of other groups, in marked contrast to free trade, where all groups are left subject to market forces. These considerations have led to a gradual decline of protectionism after World War II. Through supranational trade organizations such as the European Economic Community or global talks (GATT), trade has been liberalized substantially around the world. This was not always advantageous, particularly to fledgling economies e.g. of Africa, which were being swamped by cheap imported goods. Nevertheless, the trend against protectionism continued through the creation of NAFTA, though this caused some protectionist backlash in the USA, with the ascendancy of the ‘radical right’ in the Republican Party and its nationalist and populist critque of free trade as damaging to jobs and economic security.

European integration;Ottawa Agreements;isolationism; tariff reform