What is Protectionism - Management Assignment Help

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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 Protectionism
1. Tariffs
The 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.
Import tariffs are one of the top tools a government uses when seeking to enact protectionist policies. There are three main import tariff concepts that can be theorized for protective measures. In general, all forms of import tariffs are charged to the importing country and documented at government customs. Import tariffs raise the price of imports for a country.
Scientific tariffs are import tariffs imposed on an item-by-item basis, raising the price of goods for the importer and passing on higher prices to the end buyer. Peril point import tariffs are focused on a specific industry. These tariffs involve the calculation of levels at which import tariff decreases or increases would cause significant harm to an industry overall, potentially leading to the jeopardy of closure due to an inability to compete. Retaliatory tariffs are tariffs enacted primarily as a response to excessive duties being charged by trading partners.

2. Quotas
Quotas 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.
Import quotas are non-tariff barriers that are put in place to limit the number of products that can be imported over a set period of time. The purpose of quotas is to limit the supply of specified products provided by an exporter to an importer. This is typically a less drastic action that has a marginal effect on prices and leads to higher demand for domestic businesses to cover the shortfall.
Quotas may also be put in place to prevent dumping, which occurs when foreign producers export products at prices lower than production costs. An embargo, in which the importation of designated products is completely prohibited, is the most severe type of quota.

3. Subsidies
Subsidies 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.
Government subsidies can come in various forms. Generally, they may be direct or indirect. Direct subsidies provide businesses with cash payments. Indirect subsidies come in the form of special savings such as interest-free loans and tax breaks. When exploring subsidies, government officials may choose to provide direct or indirect subsidies in the areas of production, employment, tax, property, and more.
When seeking to boost a country’s balance of trade, a country might also choose to offer subsidies to businesses for exports. Export subsidies provide an incentive for domestic businesses to expand globally by increasing their exports internationally.

4. Standardization
The government of a country may require all foreign products to adhere to certain guidelines. For instance, the Liberian Government may demand that all imported shoes include a certain proportion of leather. Standardization measures tend to reduce foreign products in the market.
Product safety and high volumes of low-quality products or materials are typically top concerns when enacting product standards. Product standard protectionism can be a barrier that limits imports based on a country’s internal controls.
Some countries may have lower regulatory standards in the areas of food preparation, intellectual property enforcement, or materials production. This can lead to a product standard requirement or a blockage of certain imports due to regulatory enforcement. Overall, restricting imports through the implementation of product standards can often lead to a higher volume of product production domestically.

Reasons for Protectionism
An 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
More growth opportunities: Protectionism provides local industries with growth opportunities until they can compete against more experienced firms in the international market
Lower imports: Protectionist policies help reduce import levels and allow the country to increase its trade balance.
More jobs: Higher employment rates result when domestic firms boost their workforce
Higher GDP: Protectionist policies tend to boost the economy’s GDP due to a rise in domestic production

Disadvantages of Protectionism
Stagnation of technological advancements: As domestic producers don’t need to worry about foreign competition, they have no incentive to innovate or spend resources on research and development (R&D) of new products.
Limited choices for consumers: Consumers have access to fewer goods in the market as a result of limitations on foreign goods.
Increase in prices (due to lack of competition): Consumers will need to pay more without seeing any significant improvement in the product.
Economic isolation: It often leads to political and cultural isolation, which, in turn, leads to even more economic isolation.

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