Trade protectionism is the economic policy of a country to limit competition by restricting imports from other countries.

This may be done by government regulations and controls such as import quotas, protection of patents and scientific knowledge and by controlling exchange rates.

The most common form of protectionism is the imposition of tariffs (taxes) on certain imported goods. This raises the price of these goods and is meant to favour local manufacturers and protect them from cheaper imports.

But does it?

Most economists agree that politically motivated protectionism may work in the short run but is destructive in the long term. For example, a tariff on steel raises costs for steel users such as auto makers. This will be passed on to consumers.

Eventually trade protectionism weakens an industry. Without competition there is no need to innovate. The quality of the domestic product will decline. Economic growth will be slower. There will be more job losses.

The most significant effect will be that other countries will retaliate. Tariffs are a barrier to international trade and will reduce business for all countries.

Nobody wins a trade war!

Source: Free Exchange: Faction and Friction, The Economist 17 March 2018; various websites.

The information in this article has been taken from several reliable sources but does not necessarily reflect the views of UBT.  No short article can cover a topic completely; it is not intended that you should rely on this information for business decisions.