Chapter 26 : Protectionism

• Protectionism in international trade is the act of guarding a country’s industries from foreign competition, using methods like tariffs, quotas, regulation, or embargoes
• Tariffs are taxes on imports that can lead to a decrease in exports, increase the quantity demanded of domestic goods, decrease the quantity demanded of imports, result in higher prices for consumers, and a loss in consumer surplus
• Import quotas limit the quantity of a foreign-produced good sold domestically, leading to a price rise for domestic consumers, while import duties are taxes on imports by customs authorities, usually on goods exceeding a specified quantity
• Export subsidies are government interventions to encourage goods to be exported rather than sold domestically, using methods like direct payments, tax relief, or providing cheap access to credit
• Embargoes are complete bans on trade with a particular country, usually politically motivated, while voluntary export restraints are government-imposed restrictions on how many goods can be exported during a certain time period
• Excessive administrative burdens ('red tape') increase trading costs, discourage imports, and are particularly harmful for developing countries unable to access these markets
• Arguments in favor of protectionism include reducing trade deficits, protecting infant industries until they develop, correcting market failures related to demerit goods, improving the current account deficit, and protecting domestic jobs
• The main protectionist policy is tariffs which increase the price of imports to domestic consumers.