What are the main justifications for import protectionism?

Import protectionism refers to policies and measures implemented by governments to restrict or limit imports in order to protect domestic industries from foreign competition. Here are the main justifications for such protectionist policies:

1. Protecting Domestic Industries:
   • Protectionism helps shield emerging or struggling industries from foreign competition, allowing them to grow and become competitive. This support is especially critical in sectors that are important for national development or technological advancement. For example, tariffs or quotas can help nascent industries develop economies of scale before they face full global competition.
2. Safeguarding Jobs:
   • Import restrictions can prevent domestic job losses by protecting local businesses from cheaper foreign goods. This approach is particularly relevant in labor-intensive industries, where competition from low-cost producers abroad may threaten domestic employment. By limiting imports, governments aim to keep jobs in the local economy, thereby stabilizing communities and reducing unemployment.
3. Reducing Trade Deficits:
   • High levels of imports relative to exports can lead to trade deficits, which some policymakers see as a vulnerability. Protectionist measures can help reduce imports and balance trade, potentially preventing reliance on foreign goods and reducing the country’s exposure to global economic fluctuations.
4. Protecting National Security:
   • Some industries, particularly those tied to defence, energy, and technology, are critical for national security. Protectionism helps ensure these industries are domestically controlled, reducing reliance on potentially adversarial foreign suppliers and safeguarding sensitive technologies and resources.
5. Promoting Economic Diversification through Import Substitution
   • Countries heavily reliant on specific exports (such as commodities) often use protectionist policies to promote diversification into manufacturing or technology sectors. This diversification helps reduce dependence on a narrow set of exports, which can stabilize the economy and create more resilient long-term growth prospects.
6. Preventing Import Dumping and Unfair Competition:
   • Dumping occurs when foreign companies sell goods below cost to gain market share, which can harm local businesses. Protectionism, such as anti-dumping tariffs, can counteract this by levelling the playing field and preventing market distortion caused by unfair pricing practices by foreign competitors.
7. Supporting Strategic or Cultural Industries:
   • Governments sometimes protect industries that have cultural or strategic importance, such as media, agriculture, or arts, to preserve cultural identity, food security, or self-sufficiency. For example, agricultural subsidies or tariffs can protect local farmers from international competition, ensuring food security and supporting rural economies.
8. Environmental and Social Standards:
   • Protectionist policies can be used to prevent imports from countries with lower environmental or labor standards. By restricting goods produced under conditions that harm workers or the environment, countries can promote higher standards internationally and protect local industries that follow stricter regulations.

While protectionism can provide temporary benefits, it also carries risks, such as higher consumer prices and potential retaliation from trade partners. Countries often need to balance the benefits of protecting certain industries with the broader economic impact of limiting international trade.

What are the main forms of import protectionist policy?

Here are the main forms of import protectionist policies with real-world examples:

1. Tariffs:
   • Definition: Tariffs are taxes imposed on imported goods, making them more expensive and thus less competitive compared to local products.
   • Example: In 2018, the United States imposed tariffs on steel (25%) and aluminum (10%) imports from multiple countries, citing national security concerns. The tariffs aimed to protect the domestic steel and aluminum industries from cheaper foreign imports​European Central Bank.
2. Quotas:
   • Definition: Quotas set a physical limit on the quantity of a specific good that can be imported, restricting supply and supporting domestic producers by reducing competition.
   • Example: The European Union has a quota on sugar imports to protect its sugar industry from global competition, limiting the amount that can be imported annually without facing high tariffs​European Central Bank.
3. Subsidies:
   • Definition: Subsidies are financial supports given to domestic industries to reduce their production costs, making them more competitive against imports.
   • Example: The U.S. government provides extensive subsidies to its agriculture sector, especially for crops like corn, soybeans, and wheat. These subsidies make American agricultural products more competitive internationally while protecting domestic farmers from global price fluctuations​European Central Bank.
4. Anti-Dumping Measures:
   • Definition: Anti-dumping duties are imposed when a country believes a foreign company is selling goods below fair market value, potentially harming the domestic industry.
   • Example: In 2023, the EU imposed anti-dumping duties on electric bicycles imported from China, arguing that these goods were being sold at unfairly low prices, harming European manufacturers​European Central Bank.
5. Voluntary Export Restraints (VERs):
   • Definition: VERs are agreements where exporting countries voluntarily limit the quantity of goods exported to the importing country, often to avoid stricter trade barriers.
   • Example: In the 1980s, Japan agreed to voluntary export restraints on cars shipped to the United States to avoid higher tariffs, allowing the U.S. to protect its domestic automotive industry​European Central Bank.
6. Import Licensing:
   • Definition: Import licenses require importers to obtain authorization before bringing certain goods into the country, controlling the amount or origin of imports.
   • Example: India maintains an import licensing system for certain agricultural products to protect domestic farmers from competition, especially when global prices for these products are low​European Central Bank.
7. Standards and Regulations:
   • Definition: Health, safety, environmental, or technical standards can restrict imports if foreign goods do not meet these requirements, indirectly protecting domestic industries.
   • Example: The EU restricts the import of genetically modified organisms (GMOs) and other products that do not meet strict health or environmental standards, affecting imports of certain agricultural products from the United States and other countries​European Central Bank.
8. Currency Manipulation:
   • Definition: By artificially lowering the value of its currency, a country can make its exports cheaper and imports more expensive, effectively protecting domestic industries.
   • Example: China has often faced criticism for keeping the yuan undervalued, which benefits its exporters by making Chinese goods cheaper internationally and discouraging imports​European Central Bank.

Each form of import protectionism can shield specific sectors from foreign competition but often brings about higher costs for consumers, trade disputes, and potential retaliation from trading partners.