Protectionism

Background

Protectionism is an economic policy aimed at restricting international trade to protect domestic industries from foreign competition. Measures typically include tariffs, import quotas, and other trade barriers. The fundamental intention of protectionism is to bolster domestic employment, and encourage the growth of national industries, along with influencing income distribution within the country.

Historical Context

Historically, protectionism has been prevalent across various periods, becoming particularly pronounced during times of economic strain or when national industries faced severe foreign competition. The mercantilist period of the 16th to 18th centuries embraced protectionist policies fervently, seeking to maximize exports and minimize imports to build national wealth. The 20th century saw protectionist policies reemerge during economic downturns, such as the Great Depression and periods of industrial restructuring.

Definitions and Concepts

Protectionism - Defined as a policy aimed at effectuating constraints on international trade to prevent unemployment or capital losses in domestic industries threatened by imports. It also encompasses promoting certain domestic industrial sectors, manipulating internal income distributions, or leveraging a country’s international trading power.

Major Analytical Frameworks

Classical Economics

Classical economics typically advises against protectionism, arguing that free trade maximizes the wealth and welfare of nations by allowing them to specialize in Industries where they have a comparative advantage.

Neoclassical Economics

Neoclassical economists also generally support free trade, positing that trade barriers distort market efficiencies and lead to deadweight losses. However, they occasionally acknowledge situations, such as market failures, requiring selective protectionist measures.

Keynesian Economics

Although primarily focused on demand-side management to address economic cycles, Keynesians acknowledge that protectionism can occasionally mitigate the adverse impacts of global economic turbulence on domestic economies.

Marxian Economics

Marxian economists analyze protectionism in the context of class struggle and international capital flows, typically viewing it as a tool used by the state to foster national capitalist interests over international working-class solidarity.

Institutional Economics

This school considers the impact of sociopolitical institutions on economic behavior, often examining how protectionism reflects broader institutional objectives or constraints within a particular historical and socio-political context.

Behavioral Economics

Behavioral economists might explore why protectionist sentiments gain traction among populations, attributing this to perceived employment threats from foreign competition or nationalistic sentiments among domestic consumers.

Post-Keynesian Economics

Post-Keynesian economists often support interventionist policies and may advocate for protectionist measures to achieve economic stability, preserving vital industries or achieving socio-economic protections for the labor force.

Austrian Economics

Austrian economists generally criticize protectionism, promoting unfettered free markets. They argue that protectionist policies disrupt entrepreneurial discovery processes and hinder economic growth.

Development Economics

Within development economics, protectionism may be seen as a crucial strategy for emerging economies to nourish infant industries until they reach a scale capable of competing globally.

Monetarism

Monetarists argue that open markets with minimal barriers are more advantageous, stressing stable financial policies over protective trade maneuvers to achieve economic stability and growth.

Comparative Analysis

Different economic frameworks provide varied perspectives on the efficacy and ramifications of protectionism. Classical and Neoclassical economists highlight its inefficiencies, while Keynesian and some Post-Keynesian thinkers underline its utility under specific conditions. Behavioral Economics offers insights into the societal and psychological underpinnings driving protectionist policies.

Case Studies

Examples of protectionism include the Smoot-Hawley Tariff Act of 1930 in the United States, which exacerbated global economic tensions during the Great Depression. Contemporary instances involve trade wars, such as the US-China tariffs imposed in recent years, significantly impacting global supply chains.

Suggested Books for Further Studies

“Protectionism” by Jagdish Bhagwati
“The Wealth of Nations” by Adam Smith
“Economics of Development” by Dwight H. Perkins and Steven Radelet

Tariff: A tax imposed on imported goods and services.
Import Quota: A limit on the number or value of goods that can be imported.
Free Trade: The absence of tariffs, quotas, and other barriers to the free flow of goods and services between countries.
Trade War: A situation in which countries impose tariffs or other restrictions on goods from one another, leading to economic tensions.
Export Subsidy: A government policy to encourage export of goods and services by offering subsidies to exporters.