Protectionism,traditionally was associated with doctrines like mercantilism (the economicconcept that said trade creates prosperity, which a government need toencourage by means of protectionism), and import substitution (economic theorythat depend on the presumption that a country should commit to scaling back itsimport through the native production of industrial merchandise).Somehave argued that no major country has ever with success industrialized withoutsome variety of economic protection. Economic historian Paul Bairoch who wasfrom Belgium wrote that historically, free trade is the exception andprotectionism the rule.TheUnited States of America Throughout the history, USA has been amajor supporter of protectionism. From its independence till the end of thenineteenth century it remained a protectionist country.
There were a series oftariff laws which raised its barriers so that its local industry could growwithout restraint. But in the late nineteenth century, they began exportingmore than they imported, which led to their increasing integration into theglobal marketplace. A major setback for US liberalization came during 1930 whenSmoot-Hawley Tariff act was passed. This act implemented the protectionisttrade policies on over 20,000 imported groups.
Butduring the Great Depression (1929-1939) it became clear that strongprotectionist policies had led to it. Thus, after the WW-II in 1948 GATT(General Agreement on Tariffs and Trade) was launched to protect the free tradeworldwide. EuropeEuropebecame progressively protectionist during the eighteenth century. It was notedby Economic historians that immediately after the Napoleonic Wars, Europeincreasingly became protectionist, but some smaller countries like Netherlandsand Denmark believed in free trade.Butin the mid-nineteenth century, Europe started becoming more and moreprogressive and liberalized in trade.
Countries like United Kingdom,Netherlands, Denmark, Portugal, and Switzerland almost liberalized themselvesin 1860. The 1860 Cobden Chevalier Written agreement was signed between Franceand the United Kingdom, which was a major step in the direction of free tradein Europe. Similar Trade agreements were signed between many countries inEurope.
In less than two decades after the aforementioned trade agreement, in1877 Germany was almost a free trade country. Some European countries that failed toliberalize during the nineteenth century remained Protectionist like RussianEmpire and Austro-Hungarian Empire. Western Europe began to steadily liberalizetheir economies after World War II.
AsiaTraditionally,Asia was a very protectionist for its local markets and Manufacturers andproducers. This was due to the difference in technological advancement in the eastand west. They also kept certain sectors of industry with them (theirgovernment). India was in the late 20th century famous for itslicense raj, whereby for trading, setting up the industry and many others youhave had to buy the license from the Indian Government.A variety of policies have been used toachieve protectionist goals. These include: Import Tariffs: Tariffs are a kind of tax which is generally placed on imported or exported goods. Tariff rates vary as per the kind of products exported or imported. Import quotas: The government imposed trade restriction that allows an only certain number of goods and thus increases the market value of imported (or exported) products.
They are typically used in global trade to regulate the trade between any two countries. Direct subsidies: Government gives cheap loans to local companies which are not able to compete in the international markets. These subsidies protect the local jobs by assisting the local companies to adjust to the international markets. Export subsidies: Export subsidies is a government scheme that increases the exports of goods and decreases the sale of them on the domestic market. Import licensing – governments grants importers the license to import goods Anti-dumping legislation: It is a type of tariff that is imposed on imports from foreign countries that the government believes are placed well below the market price.
Exchange rate control: A government can reduce or increase the value of its currency by intervening in the foreign exchange market by either selling or buying its currency. This causes the cost of imports to increase and cost of imports to decrease that results in the improvement of its balance of trade.