Protectionism is an adopted policy. It was adopted by trading countries with the aim of protecting their local industries from competition of foreign industries. Protectionism may involve various elements such as increased tariffs, embargoes, bureaucratic import procedures, foreign exchange controls, subsidies and quotas, import licensing and increased prices of imported goods (Carbaugh, 2013). Countries employ this policy to protect themselves from damage that may be caused by global competition. The policy however has its benefits in the short run, but may turn out to be harmful to the industries in the long run.
Advantages of Protectionism
When employed in the short run as a protective mechanism, protectionism can help in developing new and upcoming industries. New industries can be protected from already established global competitors. This enables the new industries to gain ground without much competition. Protectionism also increases employment opportunities. The policy requires protection against foreign industries, in this regard, there is a need for the increase in employment of local workers. Other benefits include the protection of strategic industries that are very important for a country’s economy. A country would not wish to fully depend upon imports. It can also be used to correct a deficit in the balance of payments position which is undesirable. Finally, protectionism helps to avoid dumping. This is a situation where a commodity is sold in a foreign country cheaper than in the country where it is produced.
Disadvantages of protectionism
When used in the long run, protectionism has numerous disadvantages. Protection discourages innovation in the industries, thus making industries weak. The policy also employs a limited amount of work thereby resulting in layoffs and burnouts. The quality of goods produced by industries also deteriorates due to lack of competition eventually leading to customer dissatisfaction (Krugman, 2007). The protected infant industries also never grow normally. Similarly, protectionism has got no validity in economics and should be discouraged greatly.
Long-term employment of protectionism leads to unemployment as industries are restricted against innovation and improvement. Finally, protectionism may lead to trade wars in which industries tend to focus on local production and ignore regional and international trade (Carbaugh, 2013). Other industries in the region will come up with retaliatory measures against the local industries. This means that companies will have to hold their products in protest to the other industry’s policies. The consequences of this are lack of technologies and resources required in trade, hence trade wars.
Benefits of Open trade policy
Open trade policy stimulates economic growth by opening markets, creating employment opportunities and being open to competition, unlike protectionism. Other benefits of open trade include opening doors to innovation and economic growth. It enhances economies of scale for countries with high cost of production and improves relations between trading partners.
Disadvantages of open trade policies
Despite having numerous advantages, open trade also has many disadvantages. In open trade policy, countries lose revenue in terms of tariffs and tariffs levied by government to avert international trade can be channeled to other sectors of the economy. Another issue is the lack of incentives by industries. Industries tend to solely depend on themselves with no help from the government.
Protectionism is good at some point, but also has many disadvantages as it goes. Many countries are against protectionism policies as they tend to ruin trading relations between them and their trading partners. In going against protectionism, the countries move towards embracing the concept of free trade agreements. Free trade has greater benefits than the protectionism and should be encouraged.
Carbaugh, R. (2013). International Economics(14th Ed). Mason-OH: South Western Cengage Learning.
Daly, H. (2007). Ecological Economics and Sustainable Development. Northampton MA: Edward Elgar Publishing.
Krugman, P. (2007). Is Free Trade Passe? The Journal of Economic Perspectives, 131-134.