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Encyclopedia > Economic protectionism

Protectionism is the economic policy of restraining trade between nations, through methods such as high tariffs on imported goods, restrictive quotas, a variety of restrictive government regulations designed to discourage imports, and anti-dumping laws in an attempt to protect domestic industries in a particular nation from foreign take-over or competition. This is closely aligned with anti-globalization, and contrasts with free trade, where no artificial barriers to entry are instituted. Economic policy refers to the actions that governments take in the economic field. ... A tariff is a tax placed on imported and/or exported goods, sometimes called a customs duty. ... An import quota is a type of protectionist trade restriction that sets an upper limit on the quantity of a good that can be imported into a country in a given period of time. ... In economics, dumping can refer to any kind of predatory pricing, and is by most definitions a form of price discrimination. ... Free trade is an economic concept referring to the selling of products between countries without tariffs or other trade barriers. ...


The term is mostly used in the context of economics, where protectionism refers to policies or doctrines which "protect" businesses and living wages by restricting or regulating trade between foreign nations: Face-to-face trading interactions on the New York Stock Exchange trading floor. ...

  1. Subsidies - To protect existing businesses from risk associated with change, such as costs of labour, materials, etc.
  2. Protective Tariffs - to increase the price of a foreign competitor's goods ( Including restrictive quotas, and anti-dumping measures.) on par or higher than domestic prices.
  3. Quotas - to prevent dumping of cheaper foreign goods that would overwhelm the market.
  4. Tax cuts - Alleviation of the burdens of social and business costs.
  5. Intervention - The use of state power to bolster an economic entity.
  6. Trade restriction
  7. Exchange Rate

Protectionism has frequently been associated with economic theories such as mercantilism, the belief that it is beneficial to maintain a positive trade balance, and import substitution. In economics, a subsidy is generally a monetary grant given by a government to lower the price faced by producers or consumers of a good, generally because it is considered to be in the public interest. ... For other uses, see Risk (disambiguation). ... Manual labour (or manual labor) is physical work done with the hands, especially in an unskilled job such as fruit and vegetable picking, road building, or any other field where the work may be considered physically arduous, and which has as a profitable objective, usually the production of goods. ... A tariff is a tax placed on imported and/or exported goods, sometimes called a customs duty. ... In economics, dumping can refer to any kind of predatory pricing, and is by most definitions a form of price discrimination. ... An import quota is a type of protectionist trade restriction that sets an upper limit on the quantity of a good that can be imported into a country in a given period of time. ... A tax cut is a reduction in the rate of tax charged by a government, for example on personal or corporate income. ... Economic interventionism is a term used to describe activity undertaken by a central government to affect a countrys economy in an attempt to increase economic growth and/or standards of living. ... In the context of international relations and diplomacy, power (sometimes clarified as international power, national power, or state power) is the ability of one state to influence or control other states. ... To meet Wikipedias quality standards, this article or section may require cleanup. ... A painting of a French seaport from 1638, at the height of mercantilism. ... Balance of trade figures are the sum of the money gained by a given economy by selling exports, minus the cost of buying imports. ... Import substitution industrialization (also called ISI) is a trade and economic policy based on the premise that a developing country should attempt to substitute products which it imports, mostly finished goods, with locally produced substitutes. ...


Recent examples of protectionism in first world countries are typically motivated by the desire to protect the livelihoods of individuals in politically important domestic industries. Whereas formerly blue-collar jobs were being lost to foreign competition, in recent years there has been a renewed discussion of protectionism due to offshore outsourcing and the loss of white-collar jobs. Most economists view this form of protectionism as a disguised transfer payment from consumers (who pay higher prices for food or other protected goods) to local high-cost producers. A blue-collar worker is a working class employee who performs manual or technical labor, such as in a factory or in technical maintenance trades, in contrast to a white-collar worker, who does non-manual work generally at a desk. ... This article or section does not cite its references or sources. ... White-collar workers perform tasks which are less laborious yet often more highly paid than blue-collar workers, who do manual work. ... Alan Greenspan, former chairman, United States Federal Reserve. ... In political science and economics, a transfer payment is a payment of money from a government or any other organization to an individual, a group or another order of government for which no good or service is directly required in return. ... Consumers refers to individuals or households that purchase and use goods and services generated within the economy. ...


Some may feel that better job choice is more important than lower goods costs. Whether protectionism provides such a tradeoff between jobs and prices has not yet reached a consensus with economists. Some point out that free-trade has not benefitted those in manufacturing, and that service-sector jobs, such as store clerk, do not pay as well as manufacturing used to. [1]


Famous early protectionists in the United States included Alexander Hamilton (who set the country's financing on the tariff), Abraham Lincoln, and Theodore Roosevelt..[1][2] Alexander Hamilton (January 11, 1755 or 1757–July 12, 1804) was an Army officer, lawyer, Founding Father, American politician, leading statesman, financier and political theorist. ... Abraham Lincoln (February 12, 1809 – April 15, 1865) was the 16th President of the United States (March 4, 1861 – April 15, 1865). ... Theodore (Teddy) Roosevelt, Jr. ...

Contents

De facto protectionism

In the modern trade arena many other initiatives besides tariffs have been called protectionist. For example, some commentators, such as Jagdish Bhagwati, see developed countries' efforts in imposing their own labor or environmental standards as protectionism. Also, the imposition of restrictive certification procedures on imports are seen in this light. Jagdish Bhagwati (born 1934) is a prominent economist noted for his defense of free trade against the critics of globalization. ...


Protectionists fault the free trade model as being reverse protectionism in disguise, that of using tax policy to protect foreign manufacturers from domestic competition. By ruling out revenue tariffs on foreign products, government must fully rely on domestic taxation to provide its revenue, which falls heavily disproportionately on domestic manufacturing. As Paul Craig Roberts notes: "[Foreign discrimination of US products] is reinforced by the US tax system, which imposes no appreciable tax burden on foreign goods and services sold in the US but imposes a heavy tax burden on US producers of goods and services regardless of whether they are sold within the US or exported to other countries."*[2] Paul Craig Roberts Paul Craig Roberts is an economist and a nationally syndicated columnist for Creators Syndicate. ...


Further, others point out that free trade agreements often have protectionist provisions such as intellectual property, copyright, and patent restrictions that benefit large corporations. These provisions restrict trade in music, movies, drugs, software, and other manufactured items to high cost producers with quotas from low cost producers set to zero. [3] [4]


Other types of protectionism include administrative barriers, import licensing, and even rationing.


Current world trends

It is the stated policy of most First World countries to eliminate protectionism through free trade policies enforced by international treaties and organizations such as the World Trade Organization. Despite this, many of these countries still place protective and/or revenue tariffs on foreign products to protect some favored or politically influential industries, or to reduce the taxation demands on their internal domestic manufacturing, making their products more competitive. The elimination of these tariffs remains a contentious peg their currencies to the dollar and, thus, set prices of their exports lower than they would be if the market determined the relative prices of each currency. The terms First World, Second World, and Third World were used to divide the nations of Earth into three broad categories. ... This article or section does not adequately cite its references or sources. ...


Protectionist quotas can cause foreign producers to become more profitable, mitigating their desired effect. This happens because quotas artificially restrict supply, so it is unable to meet demand; as a result the foreign producer can command a premium price for its products. These increased profits are known as quota rents.


For example, in the United States (1981-1994), Japanese automobile companies were held to voluntary export quotas. These quotas limited the supply of Japanese automobiles desired by consumers in the United States (1.68 million, raised to 1.85 million in 1984, and raised again to 2.30 million in 1985), increasing the profit margin on each automobile more than enough (14% or about $1200 in 1983 dollars, about $2300 in 2005 dollars) to cover the reduction in the number of automobiles that they sold, leading to greater overall profits for Japanese automobile manufacturers in the United States export market, and higher prices for consumers. (Berry et al. 1999).


Criticism

Protectionism is frequently criticised as harming the people it is meant to help, instead of aiding them; these critics often support free trade. Some have denounced critics of protectionism as ideologues whose opinions are shaped more by ideology than facts. However, academic economists are generally supporters of free trade, and cite "cutting-edge research" as the basis for their opinions.[3] Economic theory, under the principle of comparative advantage, suggests that the gains from free trade outweigh the losses; some modern economists have advocated the view that free trade creates more jobs than it destroys because it allows countries to specialise in the production of goods and services they have a comparative advantage in.[4] Free trade is an economic concept referring to the selling of products between countries without tariffs or other trade barriers. ... An ideology is a collection of ideas. ... Alan Greenspan, former chairman, United States Federal Reserve. ... In economics, the theory of comparative advantage explains why it can be beneficial for two parties (countries, regions, individuals and so on) to trade if one has a lower relative cost of producing some good. ...


Most economists, such as Paul Krugman, argue that free trade even helps third world workers, even though they are not subject to the stringent health and labour standards of developed countries. This is because "the growth of manufacturing — and of the penumbra of other jobs that the new export sector creates — has a ripple effect throughout the economy" that creates competition among producers, lifting wages and living conditions.[5] It has even been suggested that those who support protectionism ostensibly to further the interests of third world workers are being disingenuous, seeking only to protect jobs in developed countries.[6] Paul Krugman Paul Robin Krugman (born February 28, 1953) is an economist who has written several books, and since 2000 has written a twice-weekly op-ed column for The New York Times. ...


Alan Greenspan, former chair of the American Federal Reserve, has criticised protectionist proposals as leading "to an atrophy of our competitive ability. ... If the protectionist route is followed, newer, more efficient industries will have less scope to expand, and overall output and economic welfare will suffer."[7] Alan Greenspan (born March 6, 1926) is an American economist and was Chairman of the Board of Governors of the Federal Reserve of the United States from 1987 to 2006. ... The Federal Reserve System is headquartered in the Eccles Building on Constitution Avenue in Washington, DC. The Federal Reserve System (also the Federal Reserve; informally The Fed) is the central banking system of the United States. ...


See also

The American School also known as National System in politics, policy and philosophy represents three different yet related things. ... Henry Charles Carey (December 15, 1793 - October 13, 1879), American economist, was born in Philadelphia. ... Alexander Hamilton (January 11, 1755 or 1757–July 12, 1804) was an Army officer, lawyer, Founding Father, American politician, leading statesman, financier and political theorist. ... The economic patriotism is a behaviour of the consummers, companies (both private and public) which consist in favorizing the goods or services produced in their country or in their group of countries. ... The phenomenon of rent-seeking was first identified in connection with monopolies by Gordon Tullock, in a paper in 1967. ... It has been suggested that Interest representation: Academic overview be merged into this article or section. ... // Classical economic analysis shows that free trade increases the global level of output because free trade permits specialization among countries. ... Friedrich List (August 6, 1789 - November 30, 1846) was a leading 19th Century German economist who believed in the National System. // He was born at Reutlingen, Württemberg. ...

Notes and references

  1. ^ Richardson, Heather Cox: "By 1865, the Republicans had developed a series of high tariffs and taxes that reflected the economic theories of Carey and Wayland and were designed to strengthen and benefit all parts of the American economy, raising the standard of living for everyone. As a Republican concluded… "Congress must shape its legislation as to incidentally aid all branches of industry, render the people prosperous, and enable them to pay taxes… for ordinary expenses of Government." — "The Greatest Nation of the Earth" Chapter 4, "Directing the Legislation of the Country to the Improvement of the Country: Tariff and Tax Legislation" pp. 136–37. President and Fellows of Harvard College, USA: 1997. ISBN 0-674-36213-6.
  2. ^ Boritt, Gabor S: "Lincoln thus had the pleasure of signing into law much of the program he had worked for through the better part of his political life. And this, as Leornard P. Curry, the historian of the legislation has aptly written, amounted to a "blueprint for modern America." and "The man Lincoln selected for the sensitive position of Secretary of the Treasury, Salmon P. Chase, was an ex-Democrat, but of the moderate cariety on economics, one whom Joseph Dorfman could even describe as 'a good Hamiltonian, and a western progressive of the Lincoln stamp in everything from a tariff to a national bank.'" — "Lincoln and the Economics of the American Dream" Chapter 14, "The Whig in the White House" pp. 196–97. Memphis State University Press, USA: 1994. ISBN 0878700439.
  3. ^ Krugman, Paul (Apr. 12, 1998). The $300,000 Man. Slate.
  4. ^ Krugman, Paul (Jan. 24, 1997). The Accidental Theorist. Slate.
  5. ^ Krugman, Paul (Mar. 21, 1997). In Praise of Cheap Labor. Slate.
  6. ^ Krugman, Paul (Nov. 21, 1997). A Raspberry for Free Trade. Slate.
  7. ^ Sicilia, David B. & Cruikshank, Jeffrey L. (2000). The Greenspan Effect, p. 131. New York: McGraw-Hill. ISBN 0-07-134919-7.

Other references

  • Berry, S., Levinsohn. J. and Pakes, A. (1999). Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy. American Economic Review 89(3): 400-30. In: Benjamin, D.K. (1999) Voluntary Export Restriction on Automobiles. Bozeman, Montana: PERC - Property and Environment Research Center. [online] Available at: http://www.perc.org/perc.php?subsection=5&id=416.

External links


 view  Topics in Trade

Definitions This article or section does not adequately cite its references or sources. ...

Balance of payments · Current account (Balance of trade) · Capital account · Foreign exchange reserves · Comparative advantage · Absolute advantage · Import substitution · International trade The balance of payments is a measure of the payments that flow from one exports and imports of goods, services, and financial capital, as well financial transfers. ... Blue = countries in current account surplus; Red = countries in current account deficit, 2005 The current account of the balance of payments is the sum of the balance of trade (exports less imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as... The balance of trade encompasses the activity of exports and imports, like the work of this cargo ship going through the Panama Canal. ... The capital account is one of two primary components of the balance of payments. ... Foreign exchange reserves are the foreign currency deposits held by central banks and monetary authorities. ... In economics, the theory of comparative advantage explains why it can be beneficial for two parties (countries, regions, individuals and so on) to trade if one has a lower relative cost of producing some good. ... A country has an absolute advantage economically over another, in a particular good, when it can produce that good more cheaply. ... Import substitution industrialization (also called ISI) is a trade and economic policy based on the premise that a developing country should attempt to substitute products which it imports, mostly finished goods, with locally produced substitutes. ... International trade is the exchange of goods and services across international boundaries or territories. ...

Organizations & Policies

World Trade Organization · International Monetary Fund · World Bank · International Trade Centre · Trade bloc · Free trade zone · Trade barrier · Import quota · Tariff This article or section does not adequately cite its references or sources. ... Washington, D.C. Headquarters and logo of the International Monetary Fund The International Monetary Fund (IMF) is an international organization that oversees the global financial system by observing exchange rates and balance of payments, as well as offering financial and technical assistance when requested. ... Logo of the World Bank The International Bank for Reconstruction and Development (IBRD, in Romance languages: BIRD), better known as the World Bank, is an international organization whose original mission was to finance the reconstruction of nations devastated by WWII. Now, its mission has expanded to fight poverty by means... The International Trade Centre (ITC) is the technical cooperation agency of the United Nations Conference on Trade and Development (UNCTAD) and the World Trade Organization (WTO) for operational, enterprise-oriented aspects of trade development. ... A trade bloc is a large free trade area or free trade area formed by one or more tax, tariff and trade agreements. ... It has been suggested that this article or section be merged into Free trade area. ... A trade barrier is general term that describes any government policy or regulation that restricts international trade, the barriers can take many forms, including: Import duties Import licenses Export licenses Quotas Tariffs Subsidies Non-tariff barriers to trade Most trade barriers work on the same principle: the imposition of some... An import quota is a type of protectionist trade restriction that sets an upper limit on the quantity of a good that can be imported into a country in a given period of time. ... A tariff is a tax on foreign goods. ...

Schools of Thought

Free trade · Balanced trade · Mercantilism · Protectionism Free trade is an economic concept referring to the selling of products between countries without tariffs or other trade barriers. ... Balanced trade is an alternative economic model to free trade. ... A painting of a French seaport from 1638, at the height of mercantilism. ...

Related Issues

Globalization · Outsourcing · Trade justice and fair trade A KFC franchise in Kuwait. ... Outsourcing entered the business world in the 1980s and often refers to the delegation of non-core operations from internal production to an external entity specializing in the management of that operation. ... Trade justice is a campaign by non-governmental organisations, such as consumer groups, trade unions, faith groups, aid agencies and environmental groups. ... Certified Fair trade quinoa producers in Ecuador. ...


 
 

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