Wednesday, February 19, 2025

PROTECTIONISM:

Policy of restricting imports by using different tools like tariffs, Quotas, embargoes, subsidies and administrative barriers.

Rationale of Protectionism:

Countries impose tariffs on goods to protect local industries, raise revenue and protect domestic jobs threatened on account of closure of the industries on account of the rise of imports.
War and economic depressions led to increase in protectionism while peace and prosperity promotes Free Trade.

Classic Tools used by Governments:

Banana wars:

Historically for a long time, European Union (EU) imposed substantial tariffs on banana imports from Latin America to protect African, Caribbean and Pacific (ACP) Countries as ACP countries were its colonies.
Exporters had to pay €176 (£141) per Tonne of bananas.
In 2012, an agreement has seen these tariffs reduced.

EU Common Agricultural Policy (CAP):

EU still impose substantial tariff rates on many agricultural markets.
The objective is to increase prices for domestic European farmers in order to increase their income.

Import Tariffs by Indian Government:

In 2020, the Indian government introduced import tariffs on a range of products, including electronic goods, toys, and furniture.
The tariffs were intended to promote domestic manufacturing and reduce India's dependence on imported goods.

Illegal Subsidies:

Many a times countries gives subsidy or support to a domestic export industry and it directly affects international trade.
This gives the exporters an unfair advantage in the world market.
Importing countries impose Countervailing Duties to counter this type of protectionism.

For example:

European airlines have been criticised for receiving ‘unfair’ support from their government.
China subsidies for its car industry during the years 2009 through 2011,
Subsidies given by US to its firm involved in green technology, such as EV.

Trump tariffs:

In March 2018, President Trump imposed tariffs on steel (25%) and aluminum (10%) from most countries.
President Trump raised tariffs on imports of many Chinese goods such as fridges, washing machines and clothes.
In 2025, Trump has also announced for reciprocal tariffs.

Green protectionism combines environmental concerns with economic measures.
This approach is focused to address global ecological challenges, such as climate change and environmental sustainability.
A key initiative in green protectionism is the European Union's Carbon Border Adjustment Mechanism (CBAM).

Carbon Border Adjustment Mechanism (CBAM). :

CBAM aims to check carbon footprints by imposing a import tariffs on certain goods from countries with less stringent climate policies.
CBAM ensures that the carbon emissions associated with the production of imported goods are accounted for.
Starting with industries like steel, cement, and aluminium, the CBAM seeks to level the playing field for European companies undergoing green transitions and encourages global partners to adopt similar environmental standards.

Free Trade Agreements (FTA)s minimize trade restrictions between economies promoting prosperity and economic growth through specialization and exchange.
Protectionism increases restriction and hence affects prosperity and economic growth.
2018-2019 US-China trade war ultimately affected around $450 billion in annual trade.
US-China Trade war was blessing in disguise for other world countries as Countries apart from US and China saw their global exports increase as a result of the US-China trade war.
Other countries were able to benefit from economies of scale to increase their exports even beyond the gap initially left by the US-China trade war.