PROTECTIONISM

policy of protecting domestic industries against foreign competition by means of tariffs, subsidies, import quotas, or other restrictions or handicaps placed on the imports of foreign competitors. Protectionist policies have been implemented by many countries despite the fact that virtually all orthodox economists agree that the world economy generally benefits from free trade. The chief protectionist measures, government-levied tariffs, raise the price of imported articles, making them less attractive to consumers than cheaper domestic products. (See tariff.) Protective tariffs have historically been employed to stimulate industries in a country that is beset by recession or depression. Protectionism may be helpful to infant industries in developing nations and as a means of fostering self-sufficiency in defense industries. Import quotas, which set a maximum level of certain goods that can be imported into a country, have the same purpose as protective tariffs but usually are more effective; though goods may continue to be imported despite protective tariffs, no goods can be imported in quantities greater than those allowed by an import quota. Wars and economic depressions or recessions have historically resulted in increases in protectionism, while peace and prosperity have tended to encourage free trade. The European monarchies tended to pursue protectionist policies in the 17th and 18th centuries in an attempt to increase their trade and build their domestic economies at the expense of other nations; these discredited policies are now known as mercantilism. Great Britain began to abandon its protective tariffs in the first half of the 19th century after it had achieved industrial preeminence in Europe. Britain's spurning of protectionism in favour of free trade was symbolized by its repeal in 1846 of the Corn Laws and their attendant duties on imported grain. Protectionist policies in Europe were relatively mild in the second half of the 19th century, though France, Germany and several other countries found it necessary at one time or another to shelter their growing industrial sectors from British competition by means of customs duties. By 1913 customs duties were low throughout the Western world, and import quotas were hardly ever used. The damage and dislocation that was caused by World War I, however, inspired a continual raising of customs barriers in Europe in the 1920s, however, and, during the Great Depression of the 1930s, record levels of unemployment engendered an epidemic of protectionist measures; world trade shrank drastically as a result. The United States had been a protectionist country since its inception, with its tariffs reaching their high points in the 1820s and the Great Depression, when 59 percent of foreign imports' value was collected under the Smoot-Hawley Act of 1930. In 1947, however, the United States was one of 23 nations to sign reciprocal trade agreements in the form of the General Agreement on Tariffs and Trade (GATT), and by 1990 about 100 nations were contracting parties to the agreement. Under GATT, most of the world's major trading nations substantially reduced their customs tariffs, and by the late 20th century GATT had become a charter governing almost all world trade. The reciprocal GATT agreements usually only limit protectionist measures rather than eliminate them entirely, though, and calls for protectionism are still heard in countries when their industries suffer severely from foreign competition.