New Protectionism refers to the resurgence of protectionist trade policies with the support of novel arguments. These arguments leverage strategic considerations and the concept of increasing returns to scale in industry. This article provides an extensive exploration of New Protectionism, including its historical context, types, key events, and detailed explanations, along with mathematical models, charts, and practical examples.
Historical Context
Protectionism, the economic policy of restricting imports to protect domestic industries, has evolved over time. Traditional protectionism, characterized by tariffs and quotas, was prevalent during the mercantilist era and resurfaced during economic crises. New Protectionism emerged in the late 20th and early 21st centuries, driven by globalization and technological advancements.
Types/Categories of New Protectionism
- Strategic Trade Policies: Focuses on the use of protectionist measures to gain a strategic advantage in global markets.
- Industry-Specific Protections: Targeting industries with increasing returns to scale to improve competitiveness.
- Technology and Innovation Protections: Implementing policies to protect nascent technologies and promote innovation within domestic markets.
Key Events
- 1980s-1990s: Increased discussions on strategic trade policies and the introduction of models considering imperfect competition.
- 2008 Financial Crisis: Revival of protectionist measures as countries sought to protect domestic industries.
- 2016-2020: Trade wars between major economies, highlighting the renewed emphasis on protectionism.
Detailed Explanations
Strategic Considerations
The strategic argument for New Protectionism posits that by protecting its industries, a country can deter foreign competitors. This involves a calculated approach where protectionism is used to create a dominant position in international markets.
Key Concept: First-Mover Advantage—by protecting an industry, a country can achieve economies of scale, reduce costs, and establish a leading position before foreign competitors can enter the market.
Increasing Returns to Scale
Increasing Returns to Scale refers to the cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output decreasing with increasing scale. In industries characterized by high fixed costs and low marginal costs, protectionism can boost domestic production, reducing average costs and enhancing competitiveness.
Mathematical Models
Krugman Model of Strategic Trade Policy
Paul Krugman’s model emphasizes the role of government intervention in industries with significant economies of scale and imperfect competition. The government can use subsidies or tariffs to support domestic firms, leading to better outcomes in terms of international competition.
graph TD
A[Government Intervention]
B[Subsidies/Tariffs]
C[Increased Domestic Production]
D[Decreased Average Costs]
E[Improved International Competitiveness]
A --> B
B --> C
C --> D
D --> E
Importance and Applicability
New Protectionism is significant because it shifts the focus from purely free-market policies to strategic interventions that can yield national benefits. This approach is particularly applicable in high-tech industries, pharmaceuticals, and sectors with substantial research and development costs.
Examples
- Semiconductor Industry: Countries imposing tariffs and providing subsidies to develop domestic semiconductor manufacturing.
- Green Technologies: Governments protecting emerging green technologies to build a competitive edge in renewable energy.
Considerations
- WTO Rules: New Protectionism must navigate the rules and regulations of the World Trade Organization (WTO), which aim to reduce trade barriers.
- Retaliation: Protectionist measures can lead to trade wars and retaliation from other countries.
- Domestic Impact: While protecting certain industries, New Protectionism can lead to higher prices for consumers and inefficiencies in the economy.
Related Terms with Definitions
- Tariffs: Taxes imposed on imported goods to protect domestic industries.
- Quotas: Limits on the quantity of goods that can be imported.
- Subsidies: Financial assistance provided by the government to support domestic industries.
- Beggar-Thy-Neighbour Policies: Economic policies that improve a country’s situation at the expense of other countries.
Comparisons
- Traditional Protectionism vs. New Protectionism: Traditional protectionism relies on straightforward tariffs and quotas, while New Protectionism uses strategic considerations and acknowledges increasing returns to scale.
- Free Trade vs. Protectionism: Free trade advocates argue for minimal restrictions on international trade, whereas protectionism supports various trade barriers to protect domestic industries.
Interesting Facts
- New Protectionism theories often derive from game theory, emphasizing strategic interactions between countries.
- The debate on New Protectionism reflects broader discussions on globalization and national sovereignty.
Inspirational Stories
- The Rise of South Korea’s Electronics Industry: Through strategic protectionist policies, South Korea nurtured its electronics industry, leading to global giants like Samsung.
Famous Quotes
- “Protectionism does not produce wealth, and free trade and economic openness are the best tools to promote competitiveness and innovation.” — Enrique Peña Nieto
Proverbs and Clichés
- “A rising tide lifts all boats,” suggesting that free trade benefits all economies, countering protectionist policies.
FAQs
Q: What is New Protectionism? A: New Protectionism refers to the revival of protectionist trade policies with new arguments based on strategic considerations and increasing returns to scale.
Q: How does New Protectionism differ from traditional protectionism? A: While traditional protectionism uses tariffs and quotas, New Protectionism incorporates strategic trade policies and acknowledges increasing returns to scale.
Q: What are the potential downsides of New Protectionism? A: Potential downsides include trade wars, higher consumer prices, and economic inefficiencies.
References
- Krugman, P. R. (1986). Strategic Trade Policy and the New International Economics.
- Bhagwati, J. (2002). Free Trade Today.
Summary
New Protectionism is a modern take on traditional protectionist policies, incorporating strategic considerations and the effects of increasing returns to scale. While offering potential competitive advantages for domestic industries, it carries risks such as trade wars and higher consumer costs. Understanding New Protectionism requires a balanced view of its strategic benefits and economic impacts.
