Pros and Cons of Trade Protectionism
Trade protectionism is the economic practice of restricting trade between countries, usually through imposing tariffs or set quotas on imported goods. It can also involve subsidizing domestic industries.
It is typically done with the intention of shielding a domestic economy from outside competition, protecting it from outside competition and protecting businesses and jobs.
It is the opposite of global free trade.
People in favor of trade protectionism often see it as a way to promote domestic industries and create a high wage economy, which spreads benefits.
Critics of trade protectionism often argue that its economic effects are generally negative, although it can sometimes have a positive effect on certain industries.
Below are all the main pros and cons of 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 Protectionism
- Jobs in first world countries can be protected from cheaper labor in poorer countries such as Mexico and India, where wages are lower and workers have worse health and safety conditions. Protectionism creates more jobs and higher wages at home. Free trade outsources jobs abroad and undercuts wages.
- Newer industries can be guarded from competition in their formative stages, allowing them to grow.
- Protectionism can bring people together and create 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 creates enormous national deficits. Protectionism reins them in.
- Free trade has directly contributed to the income inequality that is found all around. Protectionism would help close the gap.
- Some industries should always be owned domestically, and never be foreign-owned, examples might be water supply, hospitals, prisons, car manufacturing.
- Although free trade may appear to have brought about lots of cheaper foreign goods, the truth is that there is no advantage for most people as their wages have stagnated or even dropped since the 1980's.
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
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
Cons of Protectionism
- Global competition keeps the price of many goods down. Without that competition prices may go up in many cases. Even if wages increase, they may outstripped by inflation.
- Access to foreign goods becomes harder. Foreign made goods may become much more expensive or unavailable. Foods may only available at certain times of year when not imported.
- Free trade allows access to a much wider range of services and goods generally, because a lot of stuff isn't supplied or made on the domestic market.
- Many of the gains of protectionism tend to be short-lived. If you raise the 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.
- 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 will decline as there is no need for it, and prices will rise without the outside competition.
- Free trade advocates have argued, with some justification, that countries with intermeshed economies are less likely to go to war with one another.
- Periods of protectionism have a historical habit of ending in an economic slump or depression, most notably the Great Depression of the 1930's.
'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
© 2017 Paul Goodman