Protectionism

 ( Economic Ideologies ) 

William Poole, Free Trade: Why Are Economists and Noneconomists So Far Apart , Federal Reserve Bank of St. Louis Review, September/October 2004, 86(5), pp. 1: "most observers agree that 'the consensus among mainstream economists on the desirability of free trade remains almost universal.'" However, protectionism can be used to raise government revenue and enable access to intellectual property, including essential medicines.

Jason Hickel (2025). 9781786090034, Windmill Books. ISBN 9781786090034

Protectionism is frequently criticized by economists as harming the people it is intended to help. Mainstream instead support free trade. The principle of comparative advantage shows that the gains from free trade outweigh any losses as free trade creates more jobs than it destroys because it allows countries to specialize in the production of goods and services in which they have a comparative advantage.Krugman, Paul (24 January 1997). The Accidental Theorist . Slate. Protectionism results in deadweight loss; this loss to overall welfare gives no-one any benefit, unlike in a free market (without trade barriers), where there is no such total loss. Economist Stephen P. Magee claims the benefits of free trade outweigh the losses by as much as 100 to 1.

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Economic impact

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Living standards

A 2016 study found that "trade typically favors the poor", as they spend a greater share of their earnings on goods, as free trade reduces the costs of goods. Other research found that China's entry to the WTO benefited US consumers, as the price of Chinese goods were substantially reduced. Harvard economist Dani Rodrik argues that while globalization and free trade does contribute to social problems, "a serious retreat into protectionism would hurt the many groups that benefit from trade and would result in the same kind of social conflicts that globalization itself generates. We have to recognize that erecting trade barriers will help in only a limited set of circumstances and that trade policy will rarely be the best response to the problems of".

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Growth

An empirical study by Furceri et al. (2019) concluded that protectionist measures like tariff increases have a significant adverse impact on domestic output and productivity.

(2025). 9781484390061, International Monetary Fund. ISBN 9781484390061

A prominent 1999 study by Jeffrey A. Frankel and David H. Romer found while controlling for relevant factors, that free trade does have a positive impact on growth and incomes. The effect is quantitatively large and statistically significant.

Economist Arvind Panagariya criticizes the view that protectionism is good for growth. Such arguments, according to him, arise from "revisionist interpretation" of East Asian "tigers"' economic history. The Asian tigers achieved a rapid increase in per capita income without any "redistributive social programs", through free trade, which advanced Western economies took a century to achieve.

Arvind Panagariya (2025). 9780190914493, Oxford University Press. . ISBN 9780190914493

According to economic historians Findlay and O'Rourke, there is a consensus in the economics literature that protectionist policies in the interwar period "hurt the world economy overall, although there is a debate about whether the effect was large or small."

According to Dartmouth economist Douglas Irwin, "that there is a correlation between high tariffs and growth in the late nineteenth century cannot be denied. But correlation is not causation... there is no reason for necessarily thinking that import protection was a good policy just because the economic outcome was good: the outcome could have been driven by factors completely unrelated to the tariff, or perhaps could have been even better in the absence of protection." Irwin furthermore writes that "few observers have argued outright that the high tariffs caused such growth."

One study by the economic historian Brian Varian found no correlation between tariffs and growth among the Australian colonies in the late nineteenth century, a time when each of the colonies had the independence to set their own tariffs.

According to Oxford economic historian Kevin O'Rourke, "It seems clear that protection was important for the growth of US manufacturing in the first half of the 19th century; but this does not necessarily imply that the tariff was beneficial for GDP growth. Protectionists have often pointed to German and American industrialization during this period as evidence in favor of their position, but economic growth is influenced by many factors other than trade policy, and it is important to control for these when assessing the links between tariffs and growth."

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Developing world

There is broad consensus among economists that free trade helps workers in developing countries, even though they are not subject to the stringent health and labor standards of developed countries. This is because "the growth of manufacturing—and of the myriad other jobs that the new export sector creates—has a ripple effect throughout the economy" that creates competition among producers, lifting wages and living conditions.Krugman, Paul (21 March 1997). In Praise of Cheap Labor . Slate. The Nobel laureates Milton Friedman and Paul Krugman have argued for free trade as a model for economic development. Alan Greenspan, former chair of the American Federal Reserve, has criticized protectionist proposals as leading "to an atrophy of our competitive ability. ... If the protectionist route is followed, newer, more efficient industries will have less scope to expand, and overall output and economic welfare will suffer."Sicilia, David B. & Cruikshank, Jeffrey L. (2000). The Greenspan Effect, p. 131. New York: McGraw-Hill. .

Protectionists postulate that new industries may require protection from entrenched foreign competition in order to develop. Mainstream economists do concede that tariffs can in the short-term help domestic industries to develop but are contingent on the short-term nature of the protective tariffs and the ability of the government to pick the winners. The problems are that protective tariffs will not be reduced after the infant industry reaches a foothold, and that governments will not pick industries that are likely to succeed. Economists have identified a number of cases across different countries and industries where attempts to shelter infant industries failed.

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Intellectual property

The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) is an international legal agreement between all the member nations of the World Trade Organization (WTO). It establishes minimum standards for the regulation by national governments of different forms of intellectual property (IP) as applied to nationals of other WTO member nations.See TRIPS Art. 1(3). TRIPS was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) between 1989 and 1990 and is administered by the WTO. Statements by the World Bank indicate that TRIPS has not led to a demonstrable acceleration of investment to low-income countries, though it may have done so for middle-income countries.

Critics argue that TRIPS limits the ability of governments to introduce competition for generic producers. The TRIPS agreement allows the grant of compulsory licenses at a nation's discretion. TRIPS-plus conditions in the United States' FTAs with Australia, Jordan, Singapore and Vietnam have restricted the application of compulsory licenses to emergency situations, antitrust remedies, and cases of public non-commercial use.

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Access to essential medicines

One of the most visible conflicts over TRIPS has been AIDS drugs in Africa. Despite the role that patents have played in maintaining higher drug costs for public health programs across Africa, this controversy has not led to a revision of TRIPS. Instead, an interpretive statement, the Doha Declaration, was issued in November 2001, which indicated that TRIPS should not prevent states from dealing with public health crises and allowed for compulsory licenses. After Doha, PhRMA, the United States and to a lesser extent other developed nations began working to minimize the effect of the declaration.

In 2020, conflicts re-emerged over patents, copyrights and trade secrets related to COVID-19 vaccines, diagnostics and treatments. South Africa and India proposed that WTO grant a temporary waiver to enable more widespread production of the vaccines, since suppressing the virus as quickly as possible benefits the entire world. The waivers would be in addition to the existing, but cumbersome, flexibilities in TRIPS allowing countries to impose compulsory licenses. Over 100 developing nations supported the waiver but it was blocked by the G7 members. This blocking was condemned by 400 organizations including Doctors Without Borders and 115 members of the European Parliament. In June 2022, after extensive involvement of the European Union, the WTO instead adopted a watered-down agreement that focuses only on vaccine patents, excludes high-income countries and China, and contains few provisions that are not covered by existing flexibilities.

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Armed conflicts

Protectionism has been attributed as a major cause of war. Proponents of this theory point to the constant warfare in the 17th and 18th centuries among European countries whose governments were predominantly mercantilism and protectionist, the American Revolution, which came about ostensibly due to British tariffs and taxes. According to a slogan of Frédéric Bastiat (1801–1850), "When goods cannot cross borders, armies will."DiLorenzo, T. J., Frederic Bastiat (1801–1850): Between the French and Marginalist Revolutions. accessed at [Ludwig Von Mises Institute] 2012-04-13

On the other hand, archaeologist Lawrence H. Keeley argues in his book War Before Civilization that disputes between trading partners escalate to war more frequently than disputes between nations that don't trade much with each other.

(1996). 9780195119121, Oxford University Press, USA. ISBN 9780195119121

The Opium Wars were fought between the UK and Qing dynasty over the right of British merchants to engage in the free trade of opium. For many opium users, what started as recreation soon became a punishing addiction: many people who stopped ingesting opium suffered chills, nausea, and cramps, and sometimes died from withdrawal. Once addicted, people would often do almost anything to continue to get access to the drug.

Barbara Tuchman says both European intellectuals and leaders overestimated the power of free trade on the eve of World War I. They believed that the interconnectedness of European nations through trade would stop a continent-wide war from breaking out, as the economic consequences would be too great. However, the assumption proved incorrect. For example, Tuchman noted that Helmuth von Moltke the Younger, when warned of such consequences, refused to even consider them in his plans, arguing he was a "soldier," not an "economist."

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History

In the 18th century, Adam Smith famously warned against the "interested sophistry" of industry, seeking to gain an advantage at the cost of the consumers. Friedrich List saw Adam Smith's views on free trade as disingenuous, believing that Smith advocated for free trade so that British industry could lock out underdeveloped foreign competition. The National System of Political Economy, by Friedrich List, 1841, translated by Sampson S. Lloyd M.P., 1885 edition, Fourth Book, "The Politics", Chapter 33.

According to economic historians Douglas Irwin and Kevin O'Rourke, "shocks that emanate from brief financial crises tend to be transitory and have a little long-run effect on trade policy, whereas those that play out over longer periods (the early 1890s, early 1930s) may give rise to protectionism that is difficult to reverse. Regional wars also produce transitory shocks that have little impact on long-run trade policy, while global wars give rise to extensive government trade restrictions that can be difficult to reverse."

(2013). 9780226030753 . ISBN 9780226030753

One study shows that sudden shifts in comparative advantage for specific countries have led some countries to become protectionist: "The shift in comparative advantage associated with the opening up of New World frontiers, and the subsequent "grain invasion" of Europe, led to higher agricultural tariffs from the late 1870s onwards, which as we have seen reversed the move toward freer trade that had characterized mid-nineteenth-century Europe. In the decades after World War II, Japan's rapid rise led to trade friction with other countries. Japan's recovery was accompanied by a sharp increase in its exports of certain product categories: cotton textiles in the 1950s, steel in the 1960s, automobiles in the 1970s, and electronics in the 1980s. In each case, the rapid expansion in Japan's exports created difficulties for its trading partners and the use of protectionism as a shock absorber."

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China

In 2010, Paul Krugman wrote that China pursues a mercantilist and predatory policy, i.e., it keeps its currency undervalued to accumulate trade surpluses by using capital flow controls. The Chinese government sells renminbi and buys foreign currency to keep the renminbi low, giving the Chinese manufacturing sector a cost advantage over its competitors. China's surpluses drain US demand and slow economic recovery in other countries with which China trades. Krugman writes: "This is the most distorted exchange rate policy any great nation has ever followed". He notes that an undervalued renminbi is tantamount to imposing high Taking On China

In June 2015, the international community, through the IMF, rejected this notion and assessed the renminbi as suggested to be no longer undervalued.

Later that year, American economist Charles Calomiris wrote that US presidential candidate at the time Donald Trump had falsely characterized the trajectory of the renminbi's exchange rate in nominal terms and especially so when using the , and that a recent devaluation by the PBC was a passive one where inaction would've led to an even steeper devaluation by market forces, understandably so after the disappearance of "a lot of Chinese low-hanging fruit that was easily picked in the 1980s, 1990s, and 2000s."

Findlay and O'Rourke characterize 1860 Cobden Chevalier treaty between France and the United Kingdom as "a decisive shift toward European free trade." This treaty was followed by numerous free trade agreements: "France and Belgium signed a treaty in 1861; a Franco-Prussian treaty was signed in 1862; Italy entered the "network of Cobden-Chevalier treaties" in 1863 (Bairoch 1989, 40); Switzerland in 1864; Sweden, Norway, Spain, the Netherlands, and the Hanseatic towns in 1865; and Austria in 1866. By 1877, less than two decades after the Cobden Chevalier treaty and three decades after British Repeal, Germany "had virtually become a free trade country" (Bairoch, 41). Average duties on manufactured products had declined to 9–12% on the Continent, a far cry from the 50% British tariffs, and numerous prohibitions elsewhere, of the immediate post-Waterloo era (Bairoch, table 3, p. 6, and table 5, p. 42)."

Some European powers did not liberalize during the 19th century, such as the Russian Empire and Austro-Hungarian Empire which remained highly protectionist. The Ottoman Empire also became increasingly protectionist. In the Ottoman Empire's case, however, it previously had liberal free trade policies during the 18th to early 19th centuries, which British prime minister Benjamin Disraeli cited as "an instance of the injury done by unrestrained competition" in the 1846 Corn Laws debate, arguing that it destroyed what had been "some of the finest manufacturers of the world" in 1812.

The countries of Western Europe began to steadily liberalize their economies after World War II and the protectionism of the interwar period, but John Tsang, then Hong Kong's Secretary for Commerce, Industry and Technology and chair of the Sixth Ministerial Conference of the World Trade Organization, MC6, commented in 2005 that the EU spent around €70 billion per year on "trade-distorting support".Tsang, J., "Towards a Brighter Future in Trade and World Development", Hong Kong Industrialist, 2005/12, p. 28

By the 1840s, the United Kingdom had adopted a free-trade policy, meaning open markets and no tariffs throughout the empire. The Corn Laws were and other trade restrictions on imported food and grain enforced in the United Kingdom between 1815 and 1846, and enhanced the profits and political power associated with land ownership. The laws raised food prices and the costs of living for the British public, and hampered the growth of other British economic sectors, such as manufacturing, by reducing the disposable income of the British public. The Prime Minister, Robert Peel, a Conservative, achieved repeal in 1846 with the support of the Whigs in Parliament, overcoming the opposition of most of his own party.

While the United Kingdom espoused a policy of free trade in the late nineteenth century, it was hardly the case that Britain was unaffected by the tariffs imposed by its trade partners—tariffs that generally increased during the late nineteenth century. According to one study, Britain's exports in 1902 would have been 57% higher, if all of Britain's trade partners also embraced free trade. The decline in overseas demand for British exports, resulting from foreign tariffs, contributed to the so-called late-Victorian climacteric in the British economy: a decline in the growth rate, i.e. a deceleration.

During the interwar era, Britain abandoned free trade. There was a limited erosion of free trade during the 1920s under a patchwork of legislation including the Safeguarding of Industries Act of 1921, the Safeguarding of Industries Act of 1925, and the Finance Act. The Reginald McKenna, which were imposed during the First World War on motorcars; clocks and watches; musical instruments; and cinematographic film were retained. Under commodities that were early to receive protection included matches, chemicals, scientific equipment, silk, rayon, embroidery, lace, cutlery, gloves, incandescent mantles, paper, pottery, enamelled holloware, and buttons. The duties on motorcars and rayon have been determined to have expanded output considerably. Amid the Depression, Britain passed the Import Duties Act of 1932, which imposed a general tariff of 10% on most imports and created the Import Duties Advisory Committee (IDAC), which could recommend even higher duties. Britain's protectionism in the early 1930s was shown by Lloyd and Solomou to have been productivity-enhancing.

The possessions of the East India Company in India, known as British India, was the centrepiece of the British Empire, and because of an efficient taxation system it paid its own administrative expenses as well as the cost of the large British Indian Army. In terms of trade, India turned only a small profit for British business.P. J. Cain and A. G. Hopkins, British Imperialism: 1688–2000 (2nd ed. 2002) ch. 10 However, transfers to the British government was massive: in 1801 unrequited (unpaid, or paid from Indian-collected revenue) was about 30% of British domestic savings available for capital formation in the United Kingdom.

Beginning in the 1940s, Juan Perón erected a system of almost complete protectionism against imports, largely cutting off Argentina from the international market. Protectionism created a domestically oriented industry with high production costs, incapable of competing in international markets. At the same time, output of beef and grain, the country's main export goods, stagnated. The IAPI began shortchanging growers and, when world grain prices dropped in the late 1940s, it stifled agricultural production, exports and business sentiment, in general. During this period Argentina's economy continued to grow, on average, but more slowly than the world as a whole or than its neighbors, Brazil and Chile. By 1954, while still leading the region, Argentina's GDP per capita had fallen to less than half of that of the United States, from being 80% equivalent before the 1930s.

Political support by members of Congress often reflects the economic interests of producers rather than , as producers tend to be better organized politically and employ many voting workers. Trade-related interests differ across industries, depending on whether they focus on exports or face import competition. In general, workers in export-oriented sectors favor lower tariffs, while those in import-competing industries support higher tariffs.

Because congressional representation is geographically based, regional economic interests tend to shape consistent voting patterns over time. For much of U.S. history, the primary division over trade policy has been along the North–South axis. In the early 19th century, a manufacturing corridor developed in the Northeast, including textile production in New England and iron industries in Pennsylvania and Ohio, which often faced import competition. By contrast, the South specialized in agricultural exports such as cotton and tobacco.

In more recent times, representatives from the Rust Belt—spanning from Upstate New York through the industrial Midwest—have often opposed trade agreements, while those from the South and the West have generally supported them. The regional variation in trade-related interests implies that political parties may adopt opposing positions on trade policy when their electoral bases differ geographically. Each of the three trade policy eras—focused respectively on revenue, restriction, and reciprocity—occurred during periods of political dominance by a single party able to implement its preferred policies.