Legal Definitions - Protectionism

Protectionism is an economic approach where a government implements policies to restrict international trade, primarily to safeguard and promote its own domestic industries and businesses from foreign competition.

These policies often involve measures like:

• Tariffs: Taxes imposed on imported goods, making them more expensive and less competitive than domestically produced alternatives.
• Import Quotas: Limits on the quantity of specific goods that can be imported into a country.
• Subsidies: Financial assistance or grants provided by the government to domestic industries, allowing them to produce goods more cheaply and compete better against imports.
• Non-tariff barriers: Regulations, standards, or bureaucratic procedures that make it more difficult or costly for foreign goods to enter the market.

The goal of protectionism is typically to preserve domestic jobs, foster the growth of local industries, ensure national security in critical sectors, or protect specific cultural industries.

Here are some examples illustrating protectionism:

• Example 1: Tariffs on Steel Imports

  Imagine a country, "Nation A," has a struggling domestic steel industry that faces intense competition from cheaper steel imported from "Nation B." To protect its own steel manufacturers and the jobs they provide, Nation A's government imposes a 25% tariff on all imported steel. This tax makes steel from Nation B significantly more expensive for Nation A's businesses to buy, encouraging them to purchase steel from domestic producers instead. This action is a clear example of protectionism, using a tariff to shield a local industry from foreign competition.

• Example 2: Quotas on Agricultural Products

  A country known for its dairy farming wants to ensure its local farmers remain profitable and that its food supply is secure. To achieve this, the government sets a strict annual limit on the total amount of cheese, butter, and milk that can be imported from other countries. Even if foreign dairy products are cheaper or of similar quality, this quota prevents them from flooding the market and undercutting domestic prices. By limiting the volume of foreign goods, the government is practicing protectionism to support its agricultural sector.

• Example 3: Subsidies for Renewable Energy

  A government decides to invest heavily in developing a domestic renewable energy sector, such as solar panel manufacturing. To give its local companies a competitive edge against established foreign manufacturers, it offers substantial financial subsidies and tax breaks to domestic solar panel producers. These subsidies allow the local companies to sell their panels at a lower price than they otherwise could, making them more attractive to consumers and businesses within the country, even if foreign panels are produced more efficiently. This government support for a specific industry against international rivals demonstrates protectionism.