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What is Protectionism?

The implementation of economic policies meant to benefit domestic producers of goods and services is called protectionism.
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  • Written By: Mary McMahon
  • Edited By: O. Wallace
  • Last Modified Date: 18 August 2014
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Protectionism is an economic policy which is meant to benefit domestic producers of goods and services. In a nation with protectionist policies, domestic producers are insulated from competition against foreign firms by a series of barriers to import. They may also be supported directly by the government with the use of subsidies. The opposite of protectionism is free trade, in which goods are freely permitted to cross borders. Many nations support free trade, and would prefer to see protectionist economic policies barred altogether. Signatories to the General Agreement of Tariffs and Trade (GATT) and members of the World Trade Organization (WTO), for example, are typically proponents of free trade.

The logic behind protectionism is that domestic industries may suffer when confronted with foreign imports which are available at cheaper prices due to lower cost of labor, more readily available natural resources, or foreign government subsidies which help the producers keep their costs low. By imposing stiff import tariffs and quotas, a government can theoretically increase the market for domestic goods, by essentially closing the market to foreign producers. This in turn is designed to benefit the domestic economy.

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When restrictions on imports are accompanied by government subsidies to domestic companies and government export subsidies to encourage exports of domestic products, protectionism is intended to benefit domestic companies. However, this is not always the case. Thanks to the lack of competition, companies may have less interest in developing innovative new products, sticking with old inventions and technologies. They may also face export barriers, because foreign countries often respond to protectionism with protectionist policies of their own.

Individual citizens can also suffer under protectionism, because they may find that prices for goods and services become inflated. Without low-cost foreign competition, companies can afford to charge whatever they like for their goods and services, and this means that consumers may pay prices which are much higher than those paid by people in other regions of the world. They may also chafe at the lack of innovation, or lobby for a greater freedom to choose between products.

Supporters of protectionism argue that it can help nascent industries by insulating them from the open market until they are strong enough to function independently. Protectionism also theoretically protects domestic employment, by encouraging companies to hire domestically, and it can be used to promote living wages and better benefits for employees. Proponents point out that protectionism can also be used to pressure foreign nations to improve conditions for their workers.

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Karantulaa
Post 1

Notice how Europe once introduced protectionism, banning competitive industries, yet now expect the development of the underdeveloped nations with out the advantage of protectionist ideals. Doesn't protectionism help nascent industries, like those in the third world countries? Free trade is only a benefit to the developed countries and a hindrance to those seeking to develop.

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