We explain what economic protectionism is, what its advantages and disadvantages are. In addition, we tell you its origin and history.
What is protectionism?
Protectionism or economic protectionism is a type of economic policy in which The State intervenes in the country's foreign trade to shield national producers from foreign competition . This usually involves measures such as import barriers or quotas, taxes on foreign products, or subsidies to local industry and other forms that favor exports and minimize imports.
It is a form of interventionist policy since the State actively exercises its influence on foreign trade, instead of allowing free trade and the rule of supply and demand. The logic of protectionism is to make foreign products more expensive and/or replace them with national ones, so that the consumer always prefers the latter and thus promotes a self-sufficient economy.
Although protectionism played an important role in the economic development of first world countries, there are currently antagonistic positions regarding its convenience. Defenders of free trade consider protectionism as a retrograde and harmful practice that encourages artificial growth of the economy, while its detractors consider protective measures as a legal way to prevent trade imbalances that enrich certain countries more than others.
Origin and history of economic protectionism
Economic protection measures have existed since before the development of the modern economy. In the 14th century, for example, King Edward III (1312-1377) banned the importation of woolen cloth into Great Britain with the intention of stimulating the local textile industry; an economic sector highly protected over the centuries by successive British monarchs. As a result, England became the largest producer of wool in the world.
However, protectionism as we understand it today was born in 19th century Germany, and was proposed by the economist Friedrich List (1789-1846), who defended the need for the German Confederation to protect its nascent industries from the importation of products from the United Kingdom, so that it could develop and reach a level of fair competitiveness. Otherwise, the British commercial offer would end up ruining the local industry.
In later centuries, protectionism It was a common policy in different European and American nations that sought the industrialization of their economy . Many of the great European imperial powers applied protectionist recipes to compete with each other in their race for industrialization and control of international trade, and they liberalized as they felt prepared to do so. Even, in some cases, protectionist measures could be combined with others aimed at free trade.
In periods of crisis and general depression, such as the Great Depression of 1929, or the two World Wars, many nations sought to defend their economy by regulating foreign products and promoting their own. In the Latin American case, this opportunity led to the policy of import substitution and developmentalism.
Advantages and disadvantages of protectionism
In general, the advantages and disadvantages of economic protectionism can be summarized as follows:
| Advantages of protectionism | Disadvantages of protectionism |
|---|---|
| It protects the nascent industry and gives it the opportunity to upgrade before competing with more powerful foreign industries. | It can discourage competition and therefore the quality of national products, since companies know they are favored in advance. |
| It protects the local economy against “unfair” trade practices such as dumping and currency manipulation. | It allows excessive price increases, given that national industries have an artificial oligopoly. |
| It maintains a favorable trade balance, thus preventing a trade imbalance that, in the opinion of some economists, leads to local impoverishment. | It can impoverish the supply of goods and services in the country, making their import from abroad unprofitable. |
| It benefits the weakest economic sectors of the country, since only the strong are capable of competing freely with foreign countries. | Prevents or delays regional economic integration, straining international relations. It can cause conflicts and wars. |
| It allows an independent and self-sustaining economy, which also brings with it political independence. | |
| Provides tools to help the local economy in the face of international economic disasters. |
Examples of protectionist measures
Some examples of common protectionist measures are:
- Impose tariffs and/or maximum quotas on foreign goods and services.
- Prohibit import of goods in key sectors of the local economy.
- Prevent by law foreign investors from taking control of national companies.
- Establish patents and licenses that limit the transfer of scientific and technological knowledge.
- Provide subsidies and subsidies to national companies.
- Control the exchange rate of the local currency, to devalue or freeze the exchange price as appropriate.
- Implement advertising campaigns promotion of domestic consumption.
- Make direct purchases from the State to national producers.
The free market versus protectionism
Protectionism is the doctrine contrary to the free market and in that sense it is the subject of continuous criticism by defenders of supply and demand. The latter maintain that competition for the favor of consumers is the only acceptable stimulus in commercial relations, since only in this way can a level of equilibrium be achieved in the market.
For that reason, Defenders of free trade take a very dim view of state intervention in the economy . They perceive it as a source of instability, which introduces artificial and unnecessary elements into the equation, and which in the long run ends up bringing more poverty and shrinking trade. However, the debate between protection and free trade in the economy has been ongoing for almost two centuries, and is still far from being exhausted.
Economic protectionism today
After the Second World War and the founding of international cooperation organizations, such as the World Trade Organization, a campaign has been undertaken worldwide to combat protectionism and facilitate economic globalization.
However, The decades between 1960 and 1980 were characterized by protections and widespread economic growth in the West, until at the end of the century the dominant rule became that of so-called neoliberalism. Since then, free trade has become the official doctrine of the globalized world although with notable exceptions.
It is important to note, however, that measures and decisions that many consider protectionist still persist in the first world, such as the Common Agricultural Policy of the European Union or the imposition of tariffs by the United States on industrial goods manufactured in China and other countries. According to the Global Trade Alert organization, Since 2009, the economic slowdown has driven a widespread increase in protectionism globally .
References
- “Protectionism” on Wikipedia.
- “What is protectionism?” (video) on Deutsche Welle in Spanish.
- “Protectionism” on the CCH Academic Portal of the National Autonomous University of Mexico (UNAM).
- “The bases of protectionism in the economy” at the Autonomous University of the State of Hidalgo (Mexico).
- “Protectionism (economics)” in The Encyclopaedia Britannica.
