PROTECTIONISM
Protectionism refers to government policies that restrict international trade to
help domestic industries. Protectionist policies are usually implemented with
the goal to improve economic activity within a domestic economy but can also
be implemented for safety or quality concerns.
Trade protectionism is a type of policy that limits unfair competition from
foreign industries. It's a politically motivated defensive measure. In the short
run, it works. But it is very destructive in the long term. It makes the country
and its industries less competitive in international commerce.
TARIFF
• A tariff is a tax on imports. Tariff reduce supply and raise the price of
imports. This gives domestic equivalents a comparative advantage. As
such tariffs are distorting the market forces and may prevent
consumers from gaining the benefit of all the advantages of
international specialisation and trade.
• It is a most common as well as popular form of protection in the actual
practice. Under this form, duties are imposed on those commodities
which compete or expected to compete with the home produced
commodities in the domestic market. In this manner, tariffs can be
used for controlling and regulating international trade.
QUOTA
Quota is about limiting the physical quantity of certain commodities upto a fixed
level. Import quota is an important trade restriction after tariffs and is a direct
quantity restriction strategy whereby a country can arbitrarity limit the amount of
commodity to be imported or exported.
It puts limits on the quantity of certain products that can be legally imported into a
particular country during a particular time frame.
There is a fixed quota, which is a maximum quantity not to be exceeded.
For example, 2 million pounds of Swiss cheese can be imported into the United
States from Switzerland each year.
VOLUNTARY EXPORT RESTRASINTS(VERs)
A voluntary export restraint (VER) or voluntary export restriction is a government
imosed limit on the quantity of goods that can be exported out of country during a
specified period of time.
Usually it is an agreement between one country and another to limit their exports
to each other of certain goods.
VERs are a result of requests made by the importing country to provide a measure
of protection for its domestic business that produce substitute goods.
• The most notable example of VERs is when Japan imposed a VER on its auto
exports into the U.S. as a result of American pressure in the 1980s. The VER
subsequently gave the U.S. auto industry some protection against a flood of
foregin competition.
• VERs are less effective than quotas as exporters tend to fill their quota with
higher-quality and higher priced units of the product over time.
• There are ways in which a company can avoid a VER. For example, the
exporting country`s company can always build a manufacturing plant in the
country to which exports would be directed.
• By doing so, the company will no longer need to export goods, and should
not be bound by its country`s VER.
DIFFERENCE BETWEEN FREE TRADE AND
PROTECTIONISM
Free trade may lead to influx of harmful commodities through unscrupulous
merchants on account of free international movements. As a result of which,
governments start acting nationally rather than internationally. Although, people as a
whole lose globally, when trade is controlled, those of the particular country gain.
As opposed to free trade, protectionism promotes trade restriction to safeguard the
interests of trading countries from low imports. A nation may choose different forms
of protection based upon its nature, the areas which need to be targeted from the
policies and the amount of welfare affect that needs to be generated, etc.
Free trade makes people accustomed to cheaply manufactured foregin goods and thus
destroy local industries. The destruction of Indian handicrafts, particularly cotton
textiles, through free and unrestricted imports of English textiles is a glaring example.
