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Protectionism

From Academic Kids

Protectionism is the economic policy of promoting favored domestic industries through the use of high tariffs and other regulations to discourage imports. Historical variants of this policy have included mercantilism, a trade policy aimed at maximizing currency reserves by running large trade surpluses; and import substitution, a trade policy in which targeted imports are replaced by local manufactures in order to stimulate local production.

Recent examples of protectionism are typically motivated by the desire to protect the livelihoods of politically powerful groups, such as farmers in the United States and European Union, who in the absence of tariffs might be unable to compete with lower-cost foreign producers. Whereas formerly it was blue-collar jobs being lost in foreign competition, in recent years there has been a renewed discussion of protectionism due to offshore outsourcing and the loss of white-collar jobs. Most economists view this form of protectionism as a disguised transfer payment from consumers (who pay higher prices for food or other protected goods) to local high-cost producers.

It is the stated policy of most First World countries to eliminate protectionism through free trade policies enforced by international treaties and organizations such as the World Trade Organization. Despite this, many of these countries still maintain tariff barriers to protect some favored industries, and the elimination of such barriers remains a contentious political and diplomatic issue. China and Japan have been accused of protectionist policies that peg their currencies to the dollar-and thus set prices of their exports lower than they would be if the market determined the relative prices of each currency.

Protectionist policies in the form of quotas can also help exporters. For example, in the United States (1981-1994), Japanese automobile companies were held to voluntary export quotas. These quotas limited the supply of Japanese automobiles desired by consumers in the United States (1.68 million, raised to 1.85 million in 1984, and raised again to 2.30 million in 1985), increasing the profit margin on each automobile more than enough (14% or about $1200 in 1983 dollars or about $2300 in 2005 dollars) to cover the reduction in the number of automobiles that they sold, leading to greater overall profits for Japanese automobile manufacturers in their United States export market.

Famous Protectionist Policies

fi:protektionismi de:Protektionismus

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