Why do countries use protectionism?

Protectionist countries 2020

History reminds us that, in the face of severe economic crises, governments hardly resist the temptation to impose trade barriers – such as new tariffs and non-tariff barriers – to “protect our jobs.” And now with the pandemic, to “protect our health security.”

The region’s history is a stark witness in that regard. The isolationist development strategy is an unsustainable model that left a legacy of stagnation, low productivity, severe fiscal imbalances and a crippling balance of payments crisis.

In addition to compromising recovery, a protectionist reaction is not the solution to health crises either. For example, the current proliferation of restrictions on exports of medical products (Figure 1) ignores the fact that international trade depends on global value chains, which have been instrumental in reducing costs and dramatically expanding the supply of medicines.

This does not mean that there are no legitimate concerns, for example, with the concentration of the supply of medicines in a few distant countries -with non-transparent regulatory frameworks- or with the lack of regional technological training in the sector.

Consequences of protectionism

By now, we are all familiar with the image of empty shelves in supermarkets and pharmacies where there used to be masks, respirators and gloves. Fear and hoarding increase scarcity.

Less visibly, similar dynamics are occurring globally, with some countries saving supplies for their own citizens. The consequences of such measures are widespread and life-threatening. Even in its heyday, the World Trade Organization (WTO) had difficulty preventing such behavior. New initiatives are needed.

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To preserve the production of essential supplies for local consumers, several countries have imposed restrictions on exports of medical products. In doing so, they hope to avoid domestic shortages and keep prices stable during the crisis caused by the new coronavirus. As the virus progresses, more countries are likely to join the export protectionism.

Protectionism

Thus, foreign products become more expensive when entering the nation and have to raise their price to be profitable, which is beneficial for domestic products but consumers have to pay a high price to buy them.

The application of comparative advantage should lead to full specialization of countries. However, absolute specialization of a country in the production of a few goods is rare. Moreover, it is clear that many countries resort to protectionist measures.

A certain degree of interventionism that seeks to limit the entry of certain products from abroad is common. This is called trade policy. Trade policy has a strong influence on international trade through the use of tariffs, quotas, subsidies and non-tariff barriers.

The viability of a country’s infant industry can be compromised if that domestic industry is subjected to free competition from other mature foreign companies. What this argument says is that the government should protect the infant industry until its consolidation in the market allows it to compete on a “level playing field”. The justification would be to prevent a merely temporary advantage from preventing the exploitation of greater efficiency.

Protectionist countries 2021

In this article we will try to give a definition of protectionism as well as an approach to the protectionist measures most frequently used when adopting this type of economy and, finally, to see what the current trend of protectionism is.

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Protectionism is above all a doctrine, an economic philosophy whose purpose is to protect a country’s agriculture and industry by taxing imports of foreign products through tariffs, while favoring domestic goods through subsidies or credits.

While it is true that protectionist policies favor the domestic market, which competes with foreign markets, it is no less true that this type of economic policy ends up reducing trade and harming the country’s own consumers by increasing the cost of imported goods and services.

It is not possible to make a list of protectionist measures, since many of them will depend on the type of trade to be favored, the economic situation of the country, etc., however, we can indicate the most important and common ones:

Why do countries use protectionism?
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