Background
New protectionism refers to the modern incarnation of protectionism, underpinned by novel arguments and economic theories. Traditional protectionism, characterized by tariffs, quotas, and subsidies to domestic industries, aims to protect local businesses from foreign competition. New protectionism revives these measures, incorporating contemporary strategic considerations and economic assumptions.
Historical Context
Protectionism has historically ebbed and flowed in response to economic conditions and political ideologies. Following World War II, there was a significant push towards free trade, resulting in the formation of organizations such as the General Agreement on Tariffs and Trade (GATT) and, later, the World Trade Organization (WTO).
However, economic challenges and shifts, such as those seen in the late 20th and early 21st centuries, have led to a resurgence of protectionist sentiment—what we now term “new protectionism.” This resurgence is justified by newer, nuanced arguments beyond traditional anti-dumping or safeguarding measures.
Definitions and Concepts
New protectionism encompasses the revival of protectionist policies with updated justifications involving strategic considerations and increasing returns to scale.
- Strategic Protectionism: Involves protecting certain domestic industries to deter foreigners from entering the market competitively.
- Increasing Returns to Scale: Refers to the economic principle where the output of a production process increases disproportionately as the scale of production is scaled up, leading to decreased average costs and enhanced competitive positioning.
Major Analytical Frameworks
Classical Economics
Classical economics, pioneered by Adam Smith and David Ricardo, typically advocates for free trade. They argue that protectionism leads to inefficiencies and divert resources away from the most productive uses.
Neoclassical Economics
Neoclassical economists also generally favor free trade but recognize some justifications for protectionism in cases such as market failures or strategic industries critical to national security.
Keynesian Economic
Keynesian economists might support protectionism during economic downturns to support domestic employment and industry, though they caution against long-term reliance.
Marxian Economics
Marxian economics views protectionism through the lens of class struggle and might support it as a means for newly industrializing nations to develop locally-controlled economies.
Institutional Economics
Institutional economists focus on how trade policies, including protectionism, are affected by legal, political, and social institutions and how these policies shape economic outcomes.
Behavioral Economics
Behavioral economists examine the cognitive biases and social behaviors influencing trade policies, noting that voter sentiments and political pressures often shape the new protectionist policies.
Post-Keynesian Economics
Post-Keynesians might support strategic elements of new protectionism to safeguard industries crucial for economic stability and development.
Austrian Economics
Austrian economists typically oppose protectionism, emphasizing free-market competition and the long-term benefits of open trade.
Development Economics
Development economists see new protectionism as potentially beneficial for developing countries looking to build and protect nascent industries from prematurely facing international competition.
Monetarism
Monetarists are generally critical of protectionism, stressing the importance of controlling inflation and maintaining open markets for international trade efficiency.
Comparative Analysis
In contrasting new protectionism with its traditional counterpart, it is evident that modern arguments—rooted in strategic advantages and the theory of increasing returns—provide a sophisticated rationale compared to merely safeguarding local jobs. Contemporary discourse also more prominently acknowledges the potential global fallout violating cooperative norms that allow all countries mutual benefit from abstaining from protectionist policies.
Case Studies
- United States: Imposing tariffs on steel and aluminum from 2018 aimed at revitalizing domestic production yet resulting in international trade tensions.
- European Union: Agricultural subsidies serve as a protectionist measure under reform presentations gardening Europe’s economic vs. social interests.
Suggested Books for Further Studies
- “Free Trade under Fire” by Douglas A. Irwin
- “The Great Transformation” by Karl Polanyi
- “Strategic Trade Policy and Global Competition” edited by Paul R. Krugman
Related Terms with Definitions
- Protectionism: Economic policies restricting imports to protect domestic industries through tariffs, quotas, and subsidies.
- Tariff: A tax imposed on imported goods to make them more expensive relative to domestic products.
- Trade War: A situation in which countries impose tariffs or other restrictions on goods from another nation, causing a rise in retaliatory tactics.
- Beggar-my-Neighbour Policy: Economic policies designed to improve one country’s circumstances at the expense of others.