Theoretical Foundations
In 1841, Friedrich List, a German journalist and former professor of political economy, published a book entitled
The National System of Political Economy. His book became one of the most important rationales for
protectionism and government intervention during the remainder of the 19th century. Indeed, his arguments, and the arguments of those whom he inspired, were the basis for the rejection of free trade and for the revival of
protectionism and interventionism in Imperial Germany during the second half of the 19th century.
Three premises were at the foundation of List's protectionist system:
- The infant industry: "List argued that a country entering the early stages of industrialization was at a disadvantage in relation to those nations that were already industrialized."
- Forced capital investment: "List said that a nation that specialized in those lines of production dictated by the profitable opportunities offered by international commerce under free trade could find itself locked into low-income-earning activities, escape from which might be impossible."
- National interest: "List accused Adam Smith and other free-trade economists of ‘cosmopolitanism.' Men were not a part of a global community, List argued, in which their interests harmonized in a network of international commerce and division of labour. Between man and humanity was the nation, List insisted."
(Ebeling, R.
The Ghost of Protectionism Past: The Return of Friedrich List, Future of Freedom Foundation, 1994, visited 2011-05-27)
However,
protectionism has also instigated several serious economic crises. The Great Depression is a prime example of this: although the stock market crash of October 1929 may have provoked a financial economic crisis, it was
protectionism and the ensuing higher taxes that turned the crash into a major depression. In 1930, the United States saw its domestic production threatened by continually cheaper foreign imports, and thereby raised tariffs on 20,000 different products. This measure led to retaliation. World trade was destroyed. The chaos led to World War II. After the war, a strong desire to prevent recurrence led to the establishment of GATT, the General Agreement on Tariffs and Trade.
(adapted from Hudgins, E.
Protection, Not a Crashing Stock Market Is the Specter of 1929, The Heritage Foundation, Policy Research and Analysis, 1987, visited 2011-08-13)
The Reality
Protectionist practices are not likely to disappear entirely as they are a reaction to foreign competition. In fact,
protectionism has been particularly favoured in the agricultural sector.
"Each argument for
protectionism has merits:
protectionism does save jobs in protected industries, can sometimes save those industries from financial catastrophe, and can be useful sometimes when it comes to negotiating trade agreements with other countries. But in each argument, the government is placed in the role of making arbitrary decisions between which industries deserve
protection, and which must inadvertently bear the costs of
protection. The alternative is a government that does not pick winners but instead stands by principles and treats each industry the same, regardless of its political clout or well-connectedness."
(Spruiell , S.
Protectionism - Tariffs, Subsidies, and Trade Policy, Mercy Corps., 2006, visited 2011-05-27)
Protectionist Measures
Protectionist measures include tariffs, quotas and more subtle regulatory measures. If these measures are not transparent, they may be considered a form of disguised protectionism.
"The ILO firmly rejects
trade protectionism as a solution to the problems of poverty and unemployment and argues that ‘an open, multilateral trading system is clearly preferable to a world economy with limited trading links.'"
(International Labour Organization (ILO),
Developing Countries Miss Out in Trade Globalization, 2001, visited 2011-05-27)
