Protectionism

“Protectionism” describes a trade policy that consists of some degree of closed borders; for example, protectionist nations have trade barriers such as high tariffs. The term “protectionism” generally carries a negative connotation, invoking inefficiency, wrong-headed constituent groups, or misguided pessimists who prefer relative gains—in an international system where status is paramount—rather than absolute gains, shared among states. “Management” is a more all-encompassing term for a trade policy that is not completely open. While protectionism suggests insulating domestic from foreign markets, management includes which tools will be used to affect the balance of payments. Management considers trade in the context of other policy concerns, such as monetary, fiscal, security and political issues.

There are several explanations for why states choose to have a managed trade policy. Adam Smith posited one such idea, labeling it Special Interest Capture. His idea rested on the precept that special interests capture the government to protect them from foreign competition. The Stolper-Samuelson Theorem holds that an industry with relative factor abundance will advocate for free trade, while one with relative scarcity will advocate for managed trade. The theorem assumes that capital is mobile across industries and sectors. The Ricardo-Viner theorem, however, assumes that factors are specific to their industries, and that capital might not be mobile. This theorem states that where capital is mobile across industries, the Stolper-Samuelson conclusion holds true. Where capital is immobile, industries are divided with respect to free trade.

A variety of national interests arguments have been made for management. The weakest arguments include protecting infant industries (which will discourage competition), aiding industrialization or development (which, some believe, is not efficient), and retaliation when it is not required by a reciprocal trade agreement. Stronger arguments are security (the need to trade for relative gains), market power and fear of dependence. The strongest arguments are for the pursuit of monetary policy autonomy, prioritizing stability over economic growth, and the augmentation of political bonds among states.

(James Morrison, IPE Slideshow, September 30)