Concept of Protectionist Trade Policy (Protectionism)

The products of most underdeveloped countries that have adopted free trade often lack the capacity to directly compete with the products of developed countries in terms of price, quality, and technology. To enhance the competitive capacity of new and nascent industries in underdeveloped countries in terms of price, quality, and quantity of exported goods, the government can provide subsidies to a certain extent.

The policy of providing subsidies to exported goods in international trade, thereby making domestic production more competitive and encouraging domestic industries, is called protectionist policy. Under this policy, there is a practice of providing various facilities, concessions, discounts, grants/assistance, etc., with the aim of promoting and protecting domestic industries and factories.

Conversely, high tax burdens, high customs duties, quota systems, and licensing systems are imposed on imported foreign goods to discourage their import. Consequently, foreign goods become comparatively expensive, encouraging the expansion of the market for domestic goods.

Advantages of Protectionist Trade Policy (Arguments in Favor of Protectionist Trade Policy)

The advantages of protectionist trade policy are as follows:

1. Protection of Infant Industries: Industries in developing countries are often in their infancy or learning stage. These industries cannot compete in terms of capital investment, technological development, and price. Therefore, protectionist policy plays a significant role in developing countries until their new and infant industries reach maturity.
2. Elimination of Trade Discrimination: Countries involved in free trade may adopt discriminatory policies by selling goods at lower prices in foreign markets and higher prices in domestic markets. This violates consumers' right to purchase goods at fair prices. However, protectionist policy eliminates such discriminatory strategies and creates an environment of healthy trade in the country.
3. Prevention of Outflow of Domestic Currency: Protectionist policy encourages citizens to consume domestically produced goods. As the government provides tax exemptions and subsidized prices for domestic goods, the country's currency remains within the country. Consequently, the rate of domestic capital formation increases, leading to increased production, high employment, and an increase in per capita income. The large amount of money spent on purchasing foreign goods is prevented from leaving the country.
4. Promotion of Basic Industries: The development of iron and steel industries, rubber and plastic industries, and chemical and cement industries is essential as a prerequisite for the industrial and economic development of any nation. Such industries are also called basic industries or the backbone of the economy. The development of other large industries is only possible through the development of these types of industries. Government protectionist policies provide tax exemptions and subsidies on raw material purchases and exports to encourage production in these industries. The development of these industries also supports the development of other large industries.
5. Increase in Employment: Protectionist policy enhances the production and distribution capacity of small and weak industries. As a result, the demand for more labor and other factors of production increases, leading to the creation of new employment opportunities. Employment opportunities increase for highly skilled, skilled, semi-skilled, and unskilled individuals in the market. Consequently, the problems of open, semi, and disguised unemployment are gradually resolved.

Disadvantages of Protectionist Trade Policy (Arguments in Against of Protectionist Trade Policy)

It is not considered appropriate for the government to protect industries and trade sectors for an extended period. If industries are protected indefinitely, the following disadvantages begin to appear:

1. Protected Industries Become Lazy: If the government provides subsidies to domestic industries for a long time, they do not strive to develop the capacity to compete with international production. Due to regular government subsidies, some producers may not put in extra effort to reduce production costs, improve quality, increase quantity, or adopt the latest technologies. Always relying on government subsidies and not taking further initiatives to improve standards leads to the risk that protectionist policies will make domestic industries lazy.
2. Danger of Subsidy Perpetuation: While it may be natural to provide subsidies to new and infant industries for a certain period under the guise of protection, providing them indefinitely can be detrimental. Opposition from employee organizations and unfavorable market conditions can make it challenging to remove subsidies. Therefore, while it is desirable to provide protection for a short period until the industry becomes capable, long-term subsidies create problems.
3. Leads to Economic Inequality in Society: In any society, individuals with strong economic standing operate industries and businesses. Instead of investing in raising the living standards of the poor and disadvantaged, protectionist policies provide additional financial assistance to the wealthy who operate industries and businesses, leading to an unequal distribution of income and wealth.
4. Birth of Monopoly: Adopting a protectionist policy in industry and trade means securing the market for the goods produced by a particular industry and prohibiting other industries producing similar goods from entering the market. This grants a monopoly to the producer of the protected goods. Consequently, a monopoly is born.
5. Violation of Consumer Rights: Protectionist policies make foreign goods expensive compared to domestic goods by imposing taxes and implementing quota systems on foreign goods. This deprives consumers of the right to consume quality foreign goods at lower prices, forcing domestic consumers to consume low-quality domestic goods at higher prices.