What is protectionism?
Protectionism is an economic policy which is meant to benefit domestic producers of goods and services. In a nation with protectionist policies, domestic producers areinsulated 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 freetrade, 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 GeneralAgreement 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 maysuffer 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 theproducers 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.
When restrictions on imports are accompanied by government subsidies to domestic companies and government export subsidies to encourageexports 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 indeveloping 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 oftheir 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…