The practice of following protectionist trade policies Show What is Protectionism?Protectionism is the practice of following protectionist trade policies. A protectionist trade policy allows the government of a country to promote domestic producers, and thereby boost the domestic production of goods and services by imposing tariffs or otherwise limiting foreign goods and services in the marketplace. Protectionist policies also allow the government to protect developing domestic industries from established foreign competitors. Types of ProtectionismProtectionist policies come in different forms, including: 1. TariffsThe taxes or duties imposed on imports are known as tariffs. Tariffs increase the price of imported goods in the domestic market, which, consequently, reduces the demand for them. Consider the following example, which analyzes the UK market for US-made shoes. Due to the imposition of tariffs, the price for the product increases from GBP100 (P1) to GBP120 (P2). The demand for US-made shoes in the UK market decreases (from Q2 to Q4). 2. QuotasQuotas are restrictions on the volume of imports for a particular good or service over a period of time. Quotas are known as a “non-tariff trade barrier.” A constraint on the supply causes an increase in the prices of imported goods, reducing the demand in the domestic market. 3. SubsidiesSubsidies are negative taxes or tax credits that are given to domestic producers by the government. They create a discrepancy between the price faced by consumers and the price faced by producers. 4. StandardizationThe government of a country may require all foreign products to adhere to certain guidelines. For instance, the UK Government may demand that all imported shoes include a certain proportion of leather. Standardization measures tend to reduce foreign products in the market. Reasons for ProtectionismAn economy usually adopts protectionist policies to encourage domestic investment in a specific industry. For instance, tariffs on the foreign import of shoes would encourage domestic producers to invest more resources in shoe production. In addition, nascent domestic shoe producers would not be at risk from established foreign shoe producers. Although domestic producers are better off, domestic consumers are worse off as a result of protectionist policies, as they may have to pay higher prices for somewhat inferior goods or services. Protectionist policies, therefore, tend to be very popular with businesses and very unpopular with consumers. Advantages of Protectionism
Disadvantages of Protectionism
Related ReadingsThank you for reading CFI’s guide to Protectionism. To keep advancing your career, the additional CFI resources below will be useful:
What are protectionist trade measures?Definition. Trade protectionism is a policy that protects domestic industries from unfair foreign competition. The four primary tools used in trade protectionism are tariffs, subsidies, quotas, and currency manipulation.
How does protectionism limit free trade?These effects include: Consumers' limited choice and pay more for goods and services. A key effect of trade protectionism is that consumers will have a limited choice of products and goods since there may be quotas on how much may be imported.
Does protectionism protect domestic jobs?protectionism, policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors.
What is limiting protectionism?Protectionism, sometimes referred to as trade protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations.
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