The Pros and Cons of Protectionist Policies

The increase in tariffs for particular imports are actions taken by governments to stimulate failing domestic industries in order that they become more competitive in the world market. This policy, known as trade protection, has been the subject of many debates and critiques by economists and politicians for years. Those in favor of such policies believe that imposing harsh tariffs on foreign goods will shield domestic workers from foreign competition, nurture infant industries until they can be competitive in the world market, and help domestic firms establish global monopolies. However, opponents argue that the most economical, efficient, and beneficial method of growth is acquired not by protecting the more costly, burdensome domestic industries with their higher prices, worker unions, and lack of productivity, but rather by trading with foreign industries who provide mass amounts of quality, manageable and cheaper goods and services.

In order for domestic jobs to be retained, advocates argue that governments must “protect” these jobs from foreign companies and industries. If free trade was allowed, protectionist advocates argue, then trade relations with foreign businesses would force domestic firms and industries to shut down, leaving the jobless workers untrained and unprepared for work in another field. However, under protectionist policies, prices would inevitably rise and the availability of goods and services would decrease, resulting in inefficiency and financial losses as a whole. The question then becomes, “Is it worth protecting the interests of the few, while damaging the interests of the whole?” Those in favor of protectionist policies usually would favor protecting the interests of the minority, the few, as opposed to benefitting the whole of the population.

Another argument made in favor of trade protection, is the argument that in order to “nurture” infant industries, trade tariffs must be imposed on foreign goods temporarily, until those industries become competitive enough in the world market to survive without tariff protection. Although this sounds logical, history has proven this policy to be difficult and unsuccessful while prospects for future successes are bleak and doubtful. Some Latin American countries employed this practice in the 1950s and 1960s by imposing tariffs on foreign goods to stimulate their young manufacturing industry. However, the industries were never able to become efficient enough to be competitive and their attempts to “nurture” these industries ultimately failed.

Lastly, protectionist policies are often enacted to allow domestic firms to form monopolies in the world market, completely shutting out foreign competition and collecting all revenues in that particular industry. Again, this risky and expensive policy has not been proven to truly work in reality. This policy would allow for governments to fund certain domestic firms in order that they form a monopoly. However, often times, other countries will counteract protectionist policies and create a “trade war” by greatly increasing funding of their domestic firms in the same industry, causing both countries to suffer financially and economically. Often the opportunity cost is greater to “share” the market with foreign suppliers than to attempt to create a monopoly for domestic firms.

Trade protection is a complex and hotly debated policy that has been the focus of many groups and organizations. The North American Free Trade Agreement’s (NAFTA) goal is to eventually reduce and eliminate trade tariffs between North American countries over a period of several years. The World Trade Organization (WTO) is attempting to do the same, yet is facing a much more difficult and strenuous task of eliminating tariffs globally. Often times political views decide whether protectionist policies should be enacted or not. The question arises again, “Is it worth protecting the interests of the few, while damaging the interests of the whole?” Conclusively, protectionist policies as a whole have not been proven reliable and successful enough in the past to be enacted and employed in the future