The Pros and Cons of Import Tariffs and Trade Protectionism
Trade protectionism is the economic practice of restricting trade between countries, usually through imposing tariffs or setting quotas on imported goods. It can also involve subsidizing domestic industries.
It is typically done with the intention of shielding aspects of a domestic economy from outside competition to protect businesses and jobs. It is the opposite of global free trade.
People in favor of trade protectionism often see it as a way to enable the growth of domestic industries and create a high wage economy, which spreads benefits.
Critics of trade protectionism often argue that its economic effects are generally negative overall, even if it can sometimes have a positive effect on certain industries, especially if it leads to a trade war.
Below are all the main pros and cons of import tariffs and trade protectionism.
Before we move forward with new efforts to lower the barriers to international free trade, we must review the consequences of the policies of the past and address the problems of the present.— Bob Ney
Pros of Tariffs and Protectionism
- Although globalized free trade promises benefits for all, the truth is that the benefits are actually spread very unevenly with some individuals making a fortune but many losing out. Tariffs and protectionist policies can help to close the gap in income inequality.
- Tariffs and quotas mean that jobs in first world countries can be protected from cheaper labor costs in poorer countries such as Mexico and India, where workers also have worse working and safety conditions. Generally speaking, protectionism creates more jobs and higher wages at home. Free trade outsources jobs abroad and lowers wages.
- Newer industries can be guarded from competition in their formative stages, allowing them to grow.
- Protectionism can bring people together and create social coherency and a sense of patriotism. Local people working together take more pride in what they are doing, rather than feeling like a cog in some big multinational machine.
- Free trade can create enormous national deficits. Protectionism can rein them in.
- For a variety of reasons including national security, there are a number industries that should always be owned domestically and never be foreign-owned or outsourced, examples might be industries involved in military defense, water supply, hospitals, prisons, car manufacturing.
- Although free trade may have made cheaper foreign goods more available, there is no advantage for many people as their wages have stagnated or even dropped since the 1980's.
- Free trade can lead to a nation's technology heading overseas to take advantage of lower labor costs. As well as this leads to the domestic market becoming increasingly dependent on foreign suppliers, it can also mean a decline in domestic labor skills.
- Tariffs increase revenue for the government imposing them.
- Tariffs can correct an imbalance in production price. For instance when one country subsidizes its motor industry and another does not, a tariff can be used to correct the imbalance.
Not only must we fight to end disastrous unfettered free trade agreements with China, Mexico, and other low wage countries, we must fight to fundamentally rewrite our trade agreements so that American products, not jobs, are our number one export.— Bernie Sanders
Cons of Protectionism
- Global competition keeps the price of many goods down. Removing that competition results in inflation. Even if wages increase, they are outstripped by the price rises.
- Free trade allows access to a much wider range of services and goods, creating more consumer choice, because a lot of goods are not supplied or made by the domestic market. Tariffs and protectionism limit customer choice. This can include customers may have to make do with inferior products, and certain foods being only available at certain times of year.
- Many of the gains of protectionism tend to be short-lived and counter-productive. If you introduce or raise import tariffs on an another country's goods, then it is normally only a matter of time before they retaliate and raise tariffs on your exports. Many jobs will be lost that rely on exports. If you close your border to other countries' products, they will close theirs.
- Jobs that rely on the internet will also disappear, as the barriers to the free movement of capital and labor go up.
- Job outsourcing is a direct result of failure to invest in education and skills in many cases. The US, for instance, has shortages in high-tech, engineering, and science workers, because it fails to educate enough of its own people.
- Companies that are protected from outside competition may flourish in the short term, but in the longer term they will tend to become less efficient. Innovation and quality will decline over time, as there is less incentive to improve without competition.
- Foreign importers may cut costs to allow for tariffs and lower the quality of their products.
- Free trade advocates have argued, with some justification, that countries with inter-meshed economies are less likely to go to war with one another. Protectionism, on the other hand, can stir up tensions between nations.
- Periods of protectionism have a historical habit of ending in economic slump, most notably the Great Depression of the 1930's.
- The effects of tariffs can be much wider than in just the specific industry targeted. For instance, a tariff on steel production will push up the prices of all the products and processes that use steel, as well as in the steel industry itself.
Globalism began as a vision of a world with free trade, shared prosperity, and open borders. These are good, even noble things to aim for.— Deepak Chopra
'Capitalism' is a dirty word for many intellectuals, but there are a number of studies showing that open economies and free trade are negatively correlated with genocide and war.— Steven Pinker
Questions & Answers
Do import tariffs cause trade wars?
When one country imposes tariffs on imports, the countries affected can often retaliate by imposing import tariffs of their own. This can set in motion a sequence of tit for tat retaliatory tariffs that is known as a trade war. Most economists believe that trade wars are easier to start than to stop, and that everybody generally loses in the long term.
© 2017 Paul Goodman