Why is protectionism good

Protectionism - advantages viewed critically

Protectionism is a form of trade or economic policy.

The aim is to strengthen and protect the internal market or individual areas of the domestic economy.

The measures of protectionism are in competition with free trade, which would mean unrestricted international trade in goods.

This movement of goods is restricted under protectionism. The most important instruments are tariffs on foreign goods and subsidies for domestic goods.

Tariffs and import quotas to protect the economy

Tariffs and import quotas are among the most common protectionist measures. Here, foreign goods and goods are subject to customs duties or the import quantity is limited.

Such measures were particularly pronounced in the times of mercantilism, but can still be found in many cases today.

At first glance, protectionism has two advantages: on the one hand, tariffs represent a profitable source of income for the state budget, and on the other, they artificially increase the prices of foreign products.

This means that domestic products are preferred and remain competitive. For example, higher domestic wage costs can be offset in this way.

Looking further afield, however, it can be assumed that customs duties will have a negative impact on the volume of trade and thus, in the medium term, customs revenues will decrease.

In addition, one has to ask the fundamental question of whether it makes sense to keep domestic products artificially competitive. Market shakeout can also have advantages and, for example, stimulate innovations.

This fundamental question can also be transferred to another area of ​​protectionism: subsidies.

Subsidies for the domestic economy and export

In some cases, export subsidies are used, with the help of which domestic products can be offered more cheaply on the world market.

Here, too, there are different opinions as to whether a non-competitive - because it is too expensive - product should be artificially made competitive.

There is government support for certain sectors of the economy that produce too expensively to compete with foreign products on the domestic market.

The German hard coal subsidies are an example of this. They were intended to slow down the sudden and widespread death of collieries.

The reason for this measure was also to enable a relatively socially acceptable structural change by giving the economy additional time.

Critics note, however, that doing so would only postpone the inevitable. Structural change could have progressed more quickly if there had been an absolute necessity.

The international interdependencies are decisive

Protectionism has its advantages - at least in the short term. It is doubtful whether it can bring long-term success for the domestic economy.

The international interdependencies and the unity between the individual states and economic areas are decisive, as otherwise a trade war can quickly threaten.

This can happen, for example, if country A wants to protect its own branch of industry and therefore imposes high tariffs on goods from country B.

Country B can then react by subsidizing exports to country A in order to mitigate the impact of the import duties. An alternative reaction would be for country B, for its part, to impose high tariffs on products from country A.

Such measures can quickly build up and affect the overall trading volume.

The supposed advantages of protectionism must therefore be viewed critically. Individual measures can be beneficial, but can also have negative effects, especially in the medium to long term.

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