Protectionist Policies

Definition

Protectionist policies are government measures that restrict international trade to protect domestic industries from foreign competition. These policies can include tariffs, import quotas, and subsidies for local businesses, which aim to boost the local economy by making imported goods more expensive and less competitive.

5 Must Know Facts For Your Next Test

1. During the Great Depression, many countries implemented protectionist policies in an attempt to shield their economies from the global downturn.
2. The Smoot-Hawley Tariff Act of 1930 raised tariffs on hundreds of imported goods, exacerbating the economic situation by prompting retaliatory tariffs from other nations.
3. Protectionist policies often lead to trade wars, as countries respond to each other's tariffs and quotas with their own restrictions.
4. While protectionist measures can temporarily benefit domestic industries, they can also result in higher prices for consumers and reduced choices in the market.
5. The economic isolation resulting from widespread protectionism during the Great Depression contributed to the length and severity of the global economic crisis.

Review Questions

• How did protectionist policies during the Great Depression affect international trade relations?
  • Protectionist policies during the Great Depression severely impacted international trade relations by increasing tariffs and imposing quotas on imports. The Smoot-Hawley Tariff Act exemplified this trend, as it raised tariffs on numerous goods, prompting other countries to retaliate with their own tariffs. This created a cycle of escalating trade barriers that further hindered global trade and deepened the economic crisis.
• Analyze the economic rationale behind implementing protectionist policies during an economic downturn like the Great Depression.
  • The economic rationale for implementing protectionist policies during downturns like the Great Depression is rooted in the desire to protect domestic industries and preserve jobs. By making foreign goods more expensive through tariffs and quotas, governments aim to encourage consumers to buy domestically produced items. However, while this approach may provide short-term relief for local businesses, it often results in higher prices for consumers and limits competition, which can ultimately harm the economy in the long run.
• Evaluate the long-term consequences of protectionist policies enacted during the Great Depression on global trade dynamics post-crisis.
  • The long-term consequences of protectionist policies enacted during the Great Depression had a profound impact on global trade dynamics. These measures not only strained international relations but also set a precedent for isolationist attitudes among nations. In the aftermath of the crisis, countries recognized the need for cooperative trade agreements to prevent future economic downturns. This realization eventually led to institutions such as the General Agreement on Tariffs and Trade (GATT), which aimed to promote free trade and reduce barriers between nations.

Related terms

Tariff: A tariff is a tax imposed on imported goods, making them more expensive and less appealing compared to domestic products.

Import Quota: An import quota is a government-imposed limit on the quantity of a specific good that can be imported into a country, aimed at protecting local producers.

Subsidy: A subsidy is financial assistance provided by the government to support a specific industry or sector, helping it to compete against foreign imports.