Protectionism

Abstract

Government policy and domestic politics shape international trade. The most important impacts involve first, policies to restrict trade to protect domestic businesses or foreign companies producing within the domestic market and second, policies to favour domestic industries through interventionist industry policies. There are various forms of protectionism, which can be divided into tariff and non-tariff barriers (NTBs). Historically, tariffs have served two purposes: as a means of protection and as a source of state revenue. NTBs include anti-dumping measures (protection against countries that allow firms to sell goods more cheaply in international markets than at home); quarantine regulations (measures to restrict the importation of potentially diseased organic goods); industrial assistance policies, such as discriminatory government procurement regulations, subsidies, bounties and various other export incentives; complex customs procedures (measures that may delay the passage of goods); and ‘voluntary’ export restraints, and subsidies for domestic producers.

Liberal economists see tariffs as a preferable form of protection because their impact is transparent‐importers know exactly what they have to pay‐in addition to the product's cost‐to bring a product into a country. Tariffs are preferred to quotas, which absolutely restrict imports above a predetermined level, and to other NTBs, whose effects are often unclear. International trade negotiations conducted through the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT), have involved attempts to get countries to shift their forms of protection to tariffs‐a process known as ‘tariffication’. Much progress has been made since World War II to lower tariffs. As tariffs have been reduced, however, NTBs have become more important.