In 1886, American free-trade advocate Henry George famously identified the problem of protectionism through an amusing analogy: "What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war." George poignantly identified the nature of tariffs and import quotas, a forcible restriction of trade and imposed self-sufficiency, just like an embargo or blockade. Domestic consumers are forced to pay higher prices and domestic factors of production are committed into less-efficient processes.

Unintended Consequences of Protectionism

Even though protected industries may receive a short-term benefit from trade protectionism, the long-run effect is to suppress innovation and encourage political rent-seeking. Businesses are constantly looking for the easiest way to produce and protect profits, and a great many of them have joined with government policies to exclude unwanted competition.

Protectionism creates a wealth transfer from disbursed consumers, who are forced to pay higher prices, into the hands of protected business owners, employees and shareholders. A great deal of wealth is needlessly devoted towards comparatively inefficient production processes.

There are very few macroeconomic policy proposals about which virtually all economists agree, but a support of free trade is among them. On net, economists agree that protectionism hurts the domestic citizenry more than it helps any specific industry.

The Smoot-Hawley Tariff

In 1930, the United States raised tariffs on more than 20,000 imported goods through the Smoot-Hawley Tariff Act. The Act, which represented the highest tariff level in more than 100 years, was uniquely destructive to the U.S. economy. The reason it was so destructive, besides the other economic problems with tariffs, was that nearly all of America's major trade partners reciprocated by erecting their own tariffs on U.S. imports. U.S. imports dropped 66% until the Act was repealed. Exports decreased 61%. International trade virtually collapsed, making the Great Depression even worse.

  1. How do tariffs protect domestic industries?

    Understand how tariffs are used by domestic government to protect its domestic industries, how they are levied, and whether ... Read Answer >>
  2. What are common reasons for governments to implement tariffs?

    Gain a basic understanding of a government-sanctioned import tariff, what it is meant to accomplish and common reasons for ... Read Answer >>
  3. Which countries have the highest tariffs?

    Find out which countries have the most restrictive import tariffs on international products, based on data collected by the ... Read Answer >>
  4. How does comparative advantage render protectionism unnecessary?

    Find out how economic theory can debunk protectionist policies in international trade and how comparative advantage demonstrates ... Read Answer >>
  5. How is comparative advantage used as a justification for free trade policies?

    See why comparative advantage leads to the advocacy of free trade policies between international actors and why rent-seeking ... Read Answer >>
  6. What regulations exist to protect infant industries?

    Read about the history of infant industry protections in the United States, which are remnants of an old, protectionist trade ... Read Answer >>
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