Protectionism refers to government policies that impose trade barriers and other restrictions to shield domestic industries from foreign competition.
Common tools of protectionism:
- Import and export tariffs
- Import and export quotas
- Export subsidies
- Embargoes
- Excessive administrative burdens (‘red tape’)
- Voluntary export restraints
- Exchange controls
Arguments for protectionism:
- Protect infant industries until they mature
- Support declining (sunset) industries to avoid job losses
- Safeguard strategic industries (e.g., defence, energy, food production)
- Counter dumping by foreign firms
- Improve the balance of payments
Arguments against protectionism:
- Develops reliance by domestic producers on government support, reducing long-run international competitiveness
- Higher prices for consumers
- Risk of retaliation from trading partners
- Reduced consumer choice