Protectionism: Does it work?
Economic protectionist policies have been used by emerging countries across the globe as a way to keep their core values and identity, but does it actually work?
To give you some background, “Protectionism…, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations.” Basically protectionism is a way that nations protect their internal trade by heavily taxing imported goods from low cost producers across the globe. In the long run however, protectionist policies have been observed to cripple the country’s economy and stifle their technological and economical growth.
But in some cases, such as India, Protectionism may aid the country’s growth. Post-Independence India’s economy was very poor, so to increase the trade within India, the government embraced protectionist measures until the early nineties, then released almost all of these measures within a decade. This strategy has been claimed by many specialists to have been the perfect move for India given the circumstances. India’s economy has boomed, and in the past three decades the per capita GDP has grown 7x. Today India is respected as a leader in IT and Technology.
While you are reading this article right now, believing that this topic is completely unrelated to the US, the world’s most devoted supporter of free trade, you, unfortunately, are incorrect. The United States has many times used protectionist measures to protect their manufacturing jobs by imposing tariffs even while US companies themselves moved production of goods to a lower cost country.
The back and forth between the US and European countries famously known as the Chicken Tax Wars in the sixties is an example of unintended consequences of protectionist policies. In post-war France and West Germany, chicken was a luxury whereas in the United States it was a staple with increased industrial farms. In order to protect the producers and maintain the prices in Europe, West Germany and France banned Chicken imports from the US. Subsequently the United States issued a 25% tax on imported work trucks from Europe. Then it was a constant back and forth until trade was severely affected between the countries by multiple layers of taxes and tariffs. It was too late, even when countries lifted their tariffs some of the artifacts still linger and have had a lasting impact till today. Ford, when they built their TransitVans in eastern europe and imported them back, had to bring them in as passenger vans, and reconfigure them as work vans in the US by removing the seats and shipping them back in order to avoid the steep tariff on work vans. When an economic giant such as the United States uses those same measures, why wouldn’t emerging countries follow by example and use even more extreme tariffs?
Now the question is how do we fix it and help more emerging nations? Free Trade Agreements can be one mechanism. “A Free trade Agreement (FTA) is an agreement between two or more countries where the countries agree on certain obligations that affect trade in goods and services, and protections for investors and intellectual property rights, among other topics. For the United States, the main goal of trade agreements is to reduce barriers to U.S. exports, protect U.S. interests competing abroad, and enhance the rule of law in the FTA partner country or countries.” These free trade agreements are beneficial for an emerging country as well. Making an ally of a first world giant can ensure their safety and development, with benefits such as military, medical, and monetary aid. Currently the US has FTA’s with 20 countries but the rest of the emerging countries have to be willing to accept these offers and even make them.
This may not fix this issue immediately or in every case. Protectionist economic policies, while they sound like they are good for a country and give politicians their talking points, they ultimately impede growth. We all have to try harder in working to bring the resistance down on free trade.
I used the sources below to learn and research this topic.
Free Trade Agreements | U.S. Customs and Border Protection
GDP growth (annual %) — India | Data
Free trade agreement — Wikipedia
Free Trade Agreements | United States Trade Representative
Why India is one of world’s most protectionist countries — BBC News
