What do you understand by economic protectionism?
Economic ProtectionismEconomic protectionism refers to the attempts by governments of particular countries to impose certain restrictions on trade of goods and services across their boarders. Economic protectionism can be achieved through measures such as the imposition of import tariffs, which will mostly depend upon the situation of the economy. A country in great need of a particular commodity will rather lower the rate of tariffs charged on imported goods in order to encourage importation of a given commodity. On the contrary, a country that is in least need of a given commodity or produces the commodity locally will raise the rates of import tariffs for the particular product to discourage importation of the commodity (Korber 2000, p. 10).
In the views of Riley (2006), economic protectionism can also be achieved through the imposition of quotas. A county in dire need of a particular commodity will actually lift import quotas to encourage further importation of the particular commodities. Conversely, a country that is capable of producing sufficient or relatively adequate amount of a given commodity for its economy may opt to lower the importation quotas of a given commodity (Riley 2006). Under serious circumstances, a country may impose embargoes declaring total ban on importation of a particular commodity (Riley 2006). Export subsidies for locally produced goods can also be used to encourage bulk production and importation of particular commodities into the economy (Korber, 2000, p. 9).
Riley (2006) reports that, in the case countries are engaging in free trade, the government may opt to formulate preferential government procurement policy and state aid to ensure that it allocates spending that will only benefit domestic producers as opposed to foreign suppliers. This case is common in the member countries of the European Union, which award contracts to members of the organization. Similarly, governments may also structure the anti-dumping tariffs to protect the local producers and industries from the economic disadvantages that may be caused by high importation of cheap commodities. The European Union imposed anti-dumping tariffs to Norway against cheap exportation of reared salmon to the Scottish and Ireland market, which ruined domestic trade in the two importing countries. Another example of anti-dumping laws emerged when the European Union blocked inflow of Chinese television tubes, aluminium foil and zinc oxides that were believed to sell far below the average domestic price, thereby suffocating local producers.
In a move to gain local economic advantage, China reduced the value of the Yuan far below the US dollar thereby resulting to low cost of Chinese products in the USA and international markets. This resulted to increased consumption of Chinese products in import countries, slowing the output of the individual importer countries. The need to protect the US economy saw the Congress pass protectionist bill that banned importation of foreign iron and steel for construction purposes (Mankiw 2009).
Trade barriers otherwise known as economic protectionism presents positive and negative implications to the economy almost in equal measure. Krol (2008, p. 2) reports that the imposition of trade economic protection policies by the US economy in 1979 resulted to massive loss of jobs as most manufacturing companies were either cutting their production or facing automatic closure thereby raising the net cost of US economy.
The principles of market protectionism led to the abolishment of production activities that required unskilled labour and adoption of production activities that demanded skilled labour in the US economy. This action saw the US specializing in the production of high tech machines and electronics with increased export tariffs of the products while raising importation tariffs of products like clothes and shoes produced by the unskilled labour in the developing countries (Krol, 2008, p. 3). This resulted into low prices of commodity and high income margins with high standards of living.
Krol (2008, 5) further mentions that the act of US in 1807 that saw closure of its boarders to international trade and lifting of embargo to avoid confrontations with the British and French navies led to the fall of US GDP by 5% within a year. This compelled the government to cancel the embargo to lower economic costs imposed on the country. Krol (2008, p.5) ascertains that general application of the economic protectionism policies have deprived the world an estimated GDP of $ 2 trillion with specific effects on the US GDP of $497 billion. Krol (2008, p. 6) demonstrates that slight decrease in the tariffs and transportation costs in US between 1987 and 1997, resulted to yearly increase of 0.2% in productivity. Krol (2008, p. 6) discloses that over the past twenty years, the employment opportunities in the US economy have increased exponentially with its import margins.
In conclusion, economic protectionism refers to the act by a certain government of structuring restrictions intended to cushion economy from the external economic threats. Economic restrictions that have been in application include the imposition of tariffs, price and quantity quotas, adoption of anti-dumping policies and preferential government procurement policies. Economic protectionism has benefited producers and manufactures of local commodities by protecting them from the effects of cheap import commodities and unfair competition. It is also worth stating that trade barriers or economic protectionism policies have led to increased productivity of local economies due to export subsidies and custom duties. Protectionism policies are mainly adopted by the developed countries that use the opportunity in exploiting developing countries.
Bhagwati, J 2008, Protectionism, Retrieved 2011-11-21 from http://www.econlib.org/library/Enc/Protectionism.html
Körber, A 2000, The political economy of environmental protectionism, Northampton, Massachusetts; Edward Elgar Publishing.
Krol, R 2008, Trade, Protectionism, and the U.S. economy; examining the evidence. 2011-11-21 from http://www.cato.org/pubs/tbp/tProtectionismbp-028.pdf
Mankiw, G 2009, Economy; It’s No Time for Protectionism, Retrieved 2011-11-21 from http://www.nytimes.com/2009/02/08/business/economy/08view.html
Riley, G 2006, A2 Macroeconomics / International Economy; Protectionism, 2011-11-21from http://tutor2u.net/economics/revision-notes/a2-macro-protectionism.html