Protectionism can promote the growth of burgeoning industries in developing countries, but it also leads to overall higher prices and reduced innovation. Government officials often implement measures of protectionism to assist the interests that keep them in office or to grow the public treasury. In general, all members of the global market benefit more from free-trade policies than from protectionism.Continue Reading
The countries that have the most incentive to implement protectionist policies have relatively small, uncompetitive productive sectors. They put tariffs, subsidies and other measures into effect so that manufacturers are not overwhelmed by the lower cost of foreign products. Developing countries can benefit from protectionism because it facilitates the growth of thriving, independent manufacturing. They can also use the funds derived from tariffs to invest in public works.
Similarly, countries benefit from protectionism during war time. Whereas interdependence is desirable during times of peace, war necessitates competition and independence. Tariffs and importation limits strengthen a country's economic vitality while potentially weakening the economies of its enemies. Moreover, protectionism in the weapons industry is highly desirable during such circumstances because reliance on another state for armaments can be fatal.
For the most part, economists emphasize the negative effects of protectionism. It reduces international trade and raises prices for consumers. In addition, domestic firms that receive protection have less incentive to innovate. Although free trade puts uncompetitive firms out of business, the displaced workers and resources are ultimately allocated to other areas of the economy.Learn more about Economics