Protectionism: Effects, Strategies, and Implications in International Trade

Running Head: PROTECTIONISM 1
PROTECTIONISM
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PROTECTIONISM 2
Introduction
Today’s world of business has become more globalized (Rodrik, 2014). Many nations
have realized the merits of international trade and have encouraged and supported many of the
domestic businesses to venture into it. International trade is quite competitive and hence only
businesses which adopt sound economic policies survive the competition. Due to stiff
competition, weak players in international trade may end up exiting the trade as they may lack
means of survival from strong competitors. As a result, nations with weak international trade
players may end up protecting them to prevent them from collapsing since they may be the key
industries in their nations. Protectionism enables governments of various nations to protect their
local producers’ hence boosting domestic production in the nation. Protectionism is a two-edged
sword. Protectionism can be of benefit to a nation in the short term period but in the long run
period, it may seriously harm its economy. Therefore, if possible, various nations in international
trade should adopt free trade whereby various players in international trade are left to devise
their own means of survival without government intervention (Casella, 2015). Adoption of free
trade policies in international trade will help improve quality of traded goods and services to
local consumers and also reduce their price. This is due to the fact that various players in
international trade only sell goods and services for which they have a comparative advantage in
producing compared to their competitors. In this research, protectionism has been discussed from
two perspectives in that it can benefit a nation’s economy and can also harm it the long run
period. Therefore, it is recommended that various nations in international trade should undertake
protectionism only when necessary and in circumstances when it cannot be avoided
(Eichengreen, 2016).
Discussion
Protectionism refers to actions of various nations’ government of adopting trade policies
which control the trading activities of international businesses and their local businesses. The
main aim of protectionism is to shield local businesses from stiff competition by foreign
businesses hence boosting domestic production. Protectionism majorly restricts imports from
various international businesses and hence encourages the consumption of goods and services
which are produced by local producers.

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Methods of protectionism
There are various methods which can be used by various nations to protect their local
businesses. They include quotas, devaluation, tariffs, standardization, subsidization, voluntary
export restraints and preferential government spending. These have been discussed as follows:
i. Tariffs
There are two types of tariffs namely the import tariffs and the export tariffs. However,
for the purpose of protectionism, import tariffs are used as they are perceived to be helping the
local producers while export tariffs are not used as they are perceived to be hurting the local
producers. Import tariffs are generally referred to as duties or taxes which are imposed on the
imports. Import tariffs generally increase the price of imported goods more than that of the
locally produced goods in the local market hence reducing their demand (Jones, 2017). On the
other hand, the equivalent locally produced goods and services demand increases as they are
cheaper than the imported ones. Due to the increased demand for locally produced goods and
services, the local producers produce more in order to satisfy the rising demand. As a result, the
local producers end up growing by producing more and making more profit from increased sales
resulting from the increased demand for the locally produced goods and services. The following
diagram illustrates the impact of tariffs on imports:
From the diagram above, it can be seen that when tariffs are imposed, the price for the
imported goods and services increases from P1 to P2. As a result, the volume of imports decreases

PROTECTIONISM 4
from Q1Q4 to Q2Q3 due to decreased demand for imported goods. On the other hand, domestic
supply increases from Q1 to Q2 due to the increase in demand for locally produced goods and
services.
Case examples
The United States of America President, Donald Trump has imposed 25 percent tariffs on
steel and 10 percent tariffs on aluminum from the key importing nations of these materials to the
United States America (Bergsten, 2017). These include the European Union, Canada, Mexico
and China. Trump did this hoping to minimize trade deficit between the United States and these
nations especially China and also save the United States steel and aluminum manufacturers from
stiff competition from these nations. This move was countered by various nations including
China, Canada and the European Union among others by also imposing equivalent tariffs on the
United States imports in their nations and hence Trump may not achieve his intended goal of
imposing his tariffs.
ii. Quotas
Quotas refer to restrictions set by a given nation’s government on the number of imports
to be allowed into the nation or the number of exports to be allowed out of the nation. Quotas are
classified into two namely the import and export quotas. For the purpose of protectionism,
import quotas are used by a given nation’s government. Import quotas restrict the number of
imports entering a given nation. This reduces the number of imported goods in a given nation.
Due to the reduced amount of imported goods, the prices for the imported goods in the nation
increases as compared to that of the equivalent locally produced goods. As a result, their demand
decreases. On the other hand, the demand for locally produced goods and services increases.
This enables local producers to produce more goods and services to meet the increased demand.
As a result, they sell much and make more profit which enables them to expand their operations
(Fidler, 2017).
Case examples
The United States has set quotas for nations importing beef into it (De Melo, Tarr &
Mundial, 2017). Some of the nations which have set quotas for beef importation to the United