Protectionism aims to boost local economic activity, save domestic jobs from cheaper foreign labour, and foster the growth of new industries. Those in favour of protectionism argue that it’s a way to shield domestic industries, businesses, and workers from foreign competition by restricting imports through tariffs, quotas, and regulations. However, economists tend to be skeptical of protectionism because it can also raise costs and lower efficiencies.
Protectionism sits in opposition to free trade, where markets open up and goods, services, capital, and labour move with fewer restrictions.
Why do some governments use protectionism?
- To save domestic jobs and industries. Protectionism can delay layoffs, support declining industries, and buy time for structural adjustment if local firms are struggling to compete with cheap imports.
- To support emerging industries. Temporary protection can help new industries grow until they achieve the scale and efficiency needed to complete in the global market.
- To retaliate against or bargain with other countries. Governments may use protectionist measures as leverage in trade negotiations in disputes over market access or unfair practices.
Why are other governments wary of protectionism?
- Higher prices for consumers. Tariffs and quotas limit choices and raise the cost of imported everyday goods – often significantly.
- Economic inefficiencies. Industries that are protected from competition have less incentive to innovate, cut costs, or improve quality.
- Retaliation and trade wars. Protectionist moves can trigger reprisals, harming exporters and depressing global trade.
Protectionism is (literally) a trade-off.
While protectionism can save jobs in the short term and help support national goals, it can also raise costs for consumers and even trigger retaliation. For example, a tariff on steel helps steelworkers but raises costs for car manufacturers who use steel – and ultimately increases prices for car buyers. Good policy weighs these effects carefully.