The Advantages of Protectionist Policies

Updated July 20, 2017

During every election year, one of the most polarising issues is how to conduct international trade. Free trade advocates speak in terms of macroeconomic growth while protectionist advocates focus primarily on domestic concerns when framing their arguments. Rarely are economies strictly free trade or protectionist but rather are mixes of the two. The United States is a good example of a mixed economy and what can be gained from an economy with certain protectionist policies.

Protection of Domestic Jobs

One of the most cited arguments for a protectionist trade policy in the United States is that protectionist trade tactics, like high tariffs and taxes on imported goods, protect American industries and American jobs. The principle around this argument is simple: If the government adds a tax to goods coming in from foreign countries, this is a de facto way of raising the price of foreign goods and driving down demand for them. This causes consumers to look elsewhere for a similar good with a better price. Governments usually increase the tariffs to raise the price of foreign goods enough to allow domestic industries to compete. If more money goes to American companies, the more likely they are to stay in business.

Protection of Industries Important to National Interests

Protectionist policies like import tariffs are particularly necessary to protect certain industries that are vital to a country's national interest or security. During the stock market crash of 2008, this argument was used as a rationale for the government bailing out domestic automakers because they are capable of mass-producing complex cars and engines that are needed during war times. That argument was based on the same principle that a protectionist trade advocate would use to increase tariffs on foreign goods coming into the country in certain industries. The national interest of a country would predicate that it should not be totally reliant on a foreign entity for any goods it might need in an emergency.

Important to International Relations

This argument that protectionist policies are important to international relations is based on the principle that Country A's tariffs should not be lower than the tariffs that Country B has for products from Country A. If Country A had lower tariffs than Country B, Country A would be giving Country B an advantage because it would be cheaper to buy Country B's products if all else was equal. While this would not always be the case due to differing input costs like labour and the price of supplies that go into making a good, Country A could use the "poker chip" of lowering tariffs in one industry in exchange for getting a better trading rate from Country B in another industry it was hoping to grow.

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