Some first useful definitions

  • Mercantilism

Current of economic thought contemporary with the colonization of the New World and the triumph of absolute monarchy, from the 16th century to the middle of the 18th century in Europe.

  • Liberalism

The liberal system is therefore based on individual responsibility.

Protectionism

  • Etymology: from Latin protectio meaning "protection", protegere “to protect”
  • It happens when a country’s government uses tariffs, non-tariff barriers, subsidies and quotas to protect the domestic industries from foreign competition

Types of protectionism

The different types of protectionist policies are the following:

  • Tariffs: taxes related to imports i.e. a tax imposed on imported goods

Tariffs are either:

  • Specific: fixed amount added to the cost of the good
  • Or Ad valorem: percentage of the value of the good
  • Subsidies: tax credits given to domestic producers by the government. They create a gap between the price confronted by consumers and the price faced by producers.
  • Quotas: restrictions on the volume of imports of a certain good or service over a given period.
  • Standardization: a country's government may require all foreign products to meet certain guidelines.

Advantages and disadvantages of protectionism

Advantages of protectionism Disadvantages oof protectionism
  • More growth opportunities
  • More jobs
  • Higher Gross Domestic Product (GDP)
  • Fall in imports
  • Restricted choice for consumers
  • Rising prices (due to lack of competition)
  • Economic insulation
  • Stagnation of technological progress