Q. Rajan Kumar Mishra asked: What is protectionism?

Replied by VIF :

Protectionism is the economic policy imposed by governments to protect their domestic businesses and industries from foreign competition. Protectionism has a broad definition that encompasses a number of different economic policies designed to restrict trade and boost domestic manufacturing. This is essentially imposed to promote fair competition. The main aim of protectionism is to cushion domestic businesses and industries from overseas competition. The interplay of free market forces of supply and demand is inhibited through policy of protectionism.

Some of the most popular protectionist policies include:

• Import tariffs–Taxing imported goods increases the cost to importers and raises the price of the imported goods in local markets.
• Import quotas–Limiting the number of goods that can be produced abroad and sold domestically limits foreign competition in domestic markets.
• Domestic subsidies–Subsidizing costs or providing cheap loans to domestic companies can increase their competitiveness against foreign imports.
• Exchange rates–Intervening in the foreign exchange market to lower a currency's valuation can raise the cost of imports and lower the cost of exports.
• Administrative barriers–Excessive government regulations can place huge burdens on foreign imports, making it difficult to sell them in domestic markets

Posted on February 07, 2019