Protectionism is when a country tries to shield its own industries from international competition. Historically protectionism has been associated with countries trying to develop from rich to poor. The most common argument for protectionism is that before a country can compete internationally it needs time to develop it’s own industries. This is sometimes called the infant industry argument.
When a country closes off its borders to trade, it gets time to learn how to produce things for itself that it otherwise would have imported from abroad— a strategy called ‘import-substitution’. If all goes according to plan, eventually the protected industry will get really good at what it does, and will be able to stand up to foreign competition without government help.
Countries could protect their industries in a number of ways. Quotas are one – the government can impose quotas which limit how many foreign goods can be imported each year. Or they can give money to companies to give them support while they grow and experiment with new production techniques – those are called subsidies. They can even put an outright ban on importing certain things.
But the most common way to protect domestic producers is to put big taxes, called tariffs, on imported goods. This makes foreign good more expensive and encourages people to buy domestic, giving local companies more customers and more of a chance to grow.
Obviously, this isn’t the greatest news for customers, who end up paying more for what’s likely to be a lower quality domestic product. Plus, if governments keep protections in place for too long, then producers might lose the incentive to make their products better, knowing that they’re the only option anyway. It’s also a problem if there are certain essential goods that a country genuinely can’t produce because it doesn’t have the resources: putting up a tariff will end up costing businesses extra for something they can’t do without.
Economists fight about whether protectionism is a smart way to develop. Some point to cases like the South Korea, Japan, the United States and argue that limiting trade early on was a key part of their development. Others point to less successful attempts at import substitution in Latin America and Africa.
Protectionism can also be used by developed economies to try to shield businesses and workers from foreign competition. That’s what a lot of the free trade debate is about.