Advantages and Disadvantages of Protectionist Policy - Essay Example

The paper "Advantages and Disadvantages of Protectionist Policy" is an outstanding example of an essay on macro and microeconomics. Protectionist policy is a policy that was set up with the main aim of protecting local domestic industries from the aggressive competition of other international industries that seemed to be well established by the use of waivers such as subsidies, tariffs, import quotas or any other restrictions that were placed on the goods imported from other foreign countries (Encyclopedia, 2013). This policy was first adopted by the congress of the United States of America back in 1789 despite their earlier opposition to it as practiced by the British. They did this by adopting their first tariff which was aimed at raising revenue (Bartlett, 2013).

Despite the Americans adopting the policy a few years after their independence, the tariffs were applied to many of their manufactured goods in the year 1824. The goods that experienced increased tariff rates were glass, lead, iron, hemp, and wool. The protectionist policy reached its peak in the year 1828 when the new tariff referred to as Abomination was put in place (Bartlett, 2013). It was during the application of this Abomination tariff that the rates increased by up to 49 percent (Bartlett, 2013). The Americans continued using this policy even after the First World War whereby they argued that the use of high tariffs was necessary so as to be able to reduce the surplus of the treasury as well as to discourage imports. The republican had even passed the Payne-Aldrich tariff under President William Howard in 1909 (Bartlett, 2013).

The protectionist policy has been set up and defended by governments of various nations by the use of three key arguments. The first and most common reason among applying it claims that high tariffs, as well as subsidies, are a way of protecting local jobs for the citizens in the domestic industries (Spruiell, 2006). The argument has been supported by the facts like; an American steel industry that is facing competition from a foreign company in Brazil will

Be required to end contracts of the employees as a result of competition caused by cheap steel from Brazil (Spruiell, 2006). The act of laying off the employees will have negative impacts on their families. Another reason is that if the competition from a foreign company that is producing and exporting steel at an unusually low price will lead to the collapse of the local American Steel Company. The collapse of the company will result in a country like the US to face double tragedy whereby all workers will lose their jobs leaving the country with the only choice of having to depend on the foreign companies for the supply of steel (Edwards, 1991). This dependence on an external supply of steel will also be a limitation with devastating effects on the US in case the country goes to war against other nations as it will be difficult to produce the country’s own resources (Spruiell, 2006). Also, this policy has been used as a bargaining chip by many governments during various trade negotiations neighboring countries due to the belief that they have to be at par with each other (Spruiell, 2006).

The protectionist policy benefits some industries at the expense of others. In the United States of America for instance, only powerful industries dealing in steels, agribusiness, and Textile lobbies have been protected by the policy against completion from foreign companies while most of the other industries have not (Razin,1983). The policy has also saved jobs for the workers in protected companies and helped those industries avoid financial catastrophe. It has also been useful during trade negotiations among countries (Spruiell, 2006). In the case of the US increasing tariffs to protect the domestic steel industry against cheap steel from Brazil, the Brazilian steel industry suffered negative impacts of protectionist policy as it affected the ready and reliable market for its steel in America. The employees of the Brazilian company were not spared as the reduced sales resulted in them losing their jobs (Obstfeld, Maurice, 1982)

The protectionist policy, therefore, has both advantages and disadvantages to the entire economy. The protected companies together with the workers enjoy the positive side of the policy while the unprotected company faces the risk of collapsing due to the foreign competition.