Protectionism means the government interference in trade markets to protect specific industries in the economy. There are three main reason for the government interference in trade.* Protecting industry to ensure the full employment.
* Protecting infant industries as they can’t compete with the established market giants.
* Industrialization objectives of a country justify a promotion of specific sectors of the economy to diversify the economy structure.
Protectionism leads to higher prices for imported goods and may reduce the home country’s exports and employment in local markets. And it also increases the opportunity costs of a country.
The government interference in markets can be seen in two primary forms. The most direct method is applying tariffs to exports and imports of a country and the next way is non-tariff barriers.
TARIFFS
Tariffs may be applied to the goods entering the country as import duties or the goods leaving the country as export duties. There are three ways of assessing the so called tariffs.
* Ad volorem duties – Assess the value of the goods and levied on a percentage of the value
* Specific duties – Assessed according to the per unit basis. Ex : Per ton, Per meter etc.
* Compound tariffs – It’s a combination of both Ad volorem and specific duties.
Applying tariffs can be varied and can apply in selective basis. Some countries can be assessed higher duties on their imports than others while some countries can enter MNF (most favourited nation) status to sign agreements to step in to same preferential tariff zones. GATT (General Agreement on Tariff and Trade) is a good example which started with 19 countries but currently replaced with WTO (World Trade Organization) including 149 member nations.
