Protectionism is an economic policy that protects a country’s production and jobs by imposing restrictions, limitations or fees on goods or services coming from abroad (imports), making them less competitive with nationals.
The action of protectionist measures directly affects the laws of competition, that is, the laws of the market that explain the direct relationship between supply and demand. In recent years, however, and within the framework of a globalized world that assumes protectionism as a minority trend, a conservative response has emerged that many call neo-protectionism, the result of new market forms and the flow of money or products on a global scale.
However, for many years now, the major flows of international trade have been based on a free market, with hardly any protectionist barriers. The large freight forwarding companies, such as Stock Logistic, take into account all these factors when offering their freight transport services to any part of the world.
Some types of protectionism
- Compensatory, it equalizes the purchase prices of the products so that there are no significant discrepancies between the national and imported product.
- Anti-dumping, establishes barriers with subsidies to avoid the practice of “dumping” or sales below market value.
- Fiscal protectionism, protects the fiscal tasks of the nation through strategies around the collection of taxes.
How are protectionist policies applied?
Some measures to apply protectionist policies are through:
- Duties, which is the method that taxes imports directly, raising the price of imported products. This makes them less competitive.
- Quotas. This method establishes the limit quantities of products that can be imported, preventing other nations from flooding the market with cheap products resulting from subsidies.
- Subsidies are offered by governments to local industries through tax credits or direct payments, thus reducing the price of locally produced goods and services. It works better than tariffs because it has the additional advantage of making exports cheaper and more competitive abroad
Advantages and disadvantages of protectionism
Proponents of protectionism argue that some advantages of such measures are the improvement of the country’s strategic industries, the promotion of the domestic industrial sector or the protection of sectors that are beginning to develop.
Other experts, however, point out that in the long term the lack of competition ends up weakening the industry as local companies will stop innovating and improving their products or services. In the long term, they say, consumers will end up paying more for lower quality products. In addition, protectionism limits markets for domestic firms themselves, as they encounter similar measures from other nations, and eventually slows the country’s economic growth.
Free markets versus protectionism
The opposite of protectionism is the free market or free trade. It implies the absence of trade barriers that would hinder the exchange of goods or services between countries. The free market is based on the elimination of artificial barriers to the international exchange of goods and services. So while protectionism imposes measures such as tariffs, taxes or quotas, free trade eliminates them.
In a free market economy, the state offers no subsidies, regulations, laws or standards. Many experts argue that this economic doctrine achieves greater competitiveness of companies and products, improves economic activity and employment.