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Why do nations pursue protectionism?

-Desire to promote fledgling industries (also see political cronyism)

            -Discourage imports

            -Ban external investment

-Military Strategy

            -Food, steel, arms

-Economic strategy

            -Desire for local high tech

-Environmental/health concerns

            -Gasoline standards

            -Bovine growth hormone

-Labor Regulations

            -Child labor, unions

How do nations pursue protectionism?

-Import taxes

            -Raise price of imports

-Quotas

            -Create shortage of imports

-Subsidies

            -Lowers price of exports/domestic goods

-Import regulations

            -Sometimes under guise of health/labor/environmental concerns

What are the negative results of protectionism?

-Higher Taxes

            -Import taxes-high prices

            -Industry subsidies-higher prices

            -Import restrictions-higher prices

(Governments can introduce consumer subsidies but that leads to deficit spending=debt)

Impact on lesser-developed countries

            -3^rd world can’t export their goods leading to no capital

            -Developing countries with no external investment can’t build industry

-Borrowing money to develop industries leads to debt=may lead to less social spending

-No middle class emerges in developing world

Technological Innovations

            Motive to innovate is eliminated

So what is the solution?

1. World Trade Organization (WTO) – Lower tariffs + establish court to mediate trade disputes

2. North American Free Trade Agreement (NAFTA) – Free trade + open borders

3. World Bank/IMF – Loans to mitigate and restructure national debt (austerity measures)

Problems with the solutions

NAFTA + WTO

            -Loss of jobs in protected industries

            -Environmental concerns

            -Child labor

            -Working conditions

“A rush to the bottom”

World Bank/IMF

Austerity measures can destabilize a country and make the poor even more miserable