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What are protectionism policies

Protectionism policies are actions taken by governments using policy instruments to protect local businesses and economy


Protectionism policies involves imposing trade barriers to prevent international trades that may harm certain local industries. They may take the form of:-

  1. Taxes - Import and export tariffs

  2. Quotas

  3. Subsidies, and

  4. Embargoes

Why does government impose trade barriers


With globalization, countries may specialize in producing certain products. Import and export enables these goods to be sold in multiple countries enabling these firms to benefit from economies and scale resulting to lower cost of production. As such, they are able to compete with local producers by selling at lower price, affecting local businesses if they are unable to compete. Should local businesses fail, the government may not be able to achieve its economic objective. As such, trade barriers are imposed to:-

  1. Protect jobs to prevent unemployment

  2. Prevent trade deficits due to excess imports

  3. Protect new/infant or strategic industries

  4. Protect local businesses from excessive/unfair competition

  5. As a source of revenue through taxes

However, trade barriers may result to retaliation between countries that may cost more to other businesses as reciprocal protectionism policies are imposed by the affected country. This may result to a trade war.



RELEVENT CONCEPTS

  1. Globalization

  2. International Trade

  3. Trade Barriers

  4. Trade Wars

PAST YEAR QUESTIONS


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