Trade

Protectionism - the case against

 

In the face of concerns over unemployment and recession, governments are coming under pressure to implement protectionist policies and measures - including tariffs, quotas and various forms of subsidies - as a way of 'saving' domestic jobs and enterprises.

However, such measures would be counter-productive. Direct trade-restricting measures have the most negative impacts on growth and employment.

OECD says that governments should resist calls for protectionism and instead pursue further trade liberalisation, including a successful conclusion to the Doha Development Agenda talks. 

Jump to:
» Facts about protectionism
» More on protectionism, including articles, blog posts and videos

 Video

Jagdish Bhagwati on why trade still matters (4 mins 49 sec)

Protectionism would hurt world trade and the economic recovery, says Professor Jagdish Bhagwati in this OECD interview.

He also challenges the idea that trade 'takes' jobs from developed countries, and underlines the importance of World Trade Organization rules in the global trading system.

 Protectionism: "Nobody benefits, everybody loses" - interview with Ken Ash, OECD Trade Director (3 mins 4 sec)

 More OECD videos on trade

 

 Facts about protectionism

  • Protectionism makes domestic firms less competitive in the export market
    Import barriers raise domestic prices through higher costs for intermediate inputs - and so export products also become more expensive and lose market share in the face of international competition. Also, protectionism leads to retaliation by trading partners.
  • Protectionism has costs for a country's overall domestic production
    Each dollar of increased protection leads to a drop of 66 cents in gross domestic product (GDP).
  • Protectionism has a negative impact on the global economy
    An increase of $1 in tariff revenues can result in a $2.16 fall in world exports and a $0.73 drop in world income.
  • Protectionism holds back economic growth for all countries
    Full liberalisation of trade in goods and services would help increase average real incomes in developing countries by 1.3%, and by 0.76% in high-income countries. Newly-emerging economies, including Egypt, Thailand and Nigeria, would gain 3% to 6% of GDP.


From Trade, Policy and the Economic Crisis, (OECD policy note, May 2010) and Seizing the Benefits of Trade for Employment and Growth (joint report by OECD, ILO, World Bank and WTO, November 2010).

 

 

 More on protectionism

"Unsuitable for wives and servants" (OECD Insights blog)
The Smoot-Hawley Act of 1930 raised import duties on thousands of items coming into the U.S., sparking off retaliatory protectionist measures that made the Great Depression worse. (The Act also censored publication of 'obscene' books like D.H. Lawrence's Lady Chatterley.)

 Solar competition unfair say candlemakers 


 

Protectionism? Tariffs and Other Barriers to Trade (chapter from International Trade: Free, Fair and Open?)

Countries put up barriers to trade for a number of reasons, sometimes unintentionally. Getting rid of unnecessary trade barriers would give a great boost to global economic welfare, says this chapter from our basic guide to international trade. 

 Read the full book online
 See all OECD publications on trade


Protectionism - "Nobody benefits: everybody loses"

Video: Ken Ash, OECD Trade and Agriculture Director, on how consumers would pay the cost of any protectionist measures taken by governments.

 See more OECD videos on trade

 

Imports: helping domestic firms

International trade in intermediate inputs such as computer components and raw materials helps businesses become more productive and competitive. Restricting this trade is more likely to result in firm closures and job losses.


Why open markets matter 

Open trade is an essential component of any realistic policy framework for economic recovery and continued, sustainable development.


 

Trade, Policy and the Economic Crisis

Analysis of trade-related measures taken by countries in response to the global economic crisis that started in 2008.


 

Trade policy response to the economic crisis

Governments should resist protectionist pressures and work towards a level playing field for trade, says OECD analysis including the 2010 publication Trade and Economic Effects of Responses to the Economic Crisis.

 See all OECD publications on trade


Do open markets matter - or is protectionism the answer?

A comparison of these two policy approaches shows the benefits of open markets and the reasons why protectionism would backfire.

 

 

 

 

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