Protectionism in Economics

What is Protectionism?

Protectionism: The act of safeguarding a nation's local industries from international competition by implementing barriers such as tariffs and quotas.

Historical Evolution of Protectionism

• Early 20th Century: South Africa utilised protectionist strategies in agriculture, supporting local farmers through tariffs and promoting the domestic market.

• Great Depression: This economic downturn led to wider protectionist measures in South Africa, emphasising industrial support to mitigate economic challenges.

• Post-WWII Period: Focus shifted towards industrialisation and import substitution, aiming to decrease import dependence and enhance domestic production in South Africa.

• Recent Decades: Following apartheid, South Africa inclined towards trade liberalisation while preserving protectionist policies to bolster specific sectors like manufacturing.

  Example: The South African textile industry received protectionist backing via tariffs to remain competitive internationally.

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Economic Theory

Distinction from Free Trade

• Free Trade: Encourages open and unrestricted global exchange of goods, fostering worldwide competition.
• Protectionism: Establishes barriers to protect local industries from external competition, ensuring competitiveness in the domestic market.

Economic Models Relation

• Supply and Demand: Protectionism alters market conditions, impacting goods' prices and availability through the introduction of trade barriers.

  infoNote

  Supply and Demand: An economic concept illustrating how the prices of goods result from their availability and consumer desire.

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Objectives and Rationale

• Protect Domestic Industries: Shields local enterprises, allowing them to prosper amidst global competition.

• Safeguard Jobs: Helps maintain employment levels by supporting local businesses.

• Preserve National Security: Limits dependency on foreign imports for essential goods.

  Example: Tariffs on imported steel serve to bolster domestic manufacturing for strategic sectors.

Protectionist Measures

Introduction to Protectionist Measures

Protectionist measures: Actions taken by governments to shield local industries from foreign competition.

• Example: Tariffs on shoes help local footwear industries by restricting cheaper imports and raising local prices.

• Objectives:
  • Support local enterprises: Increase demand for domestic products.
  • Address trade imbalances: Stabilise the economy.
  • Control foreign goods: Enhance local markets.

Common Protectionist Measures

Measure Type	Description	Example in South Africa	Impact on Economy
Tariffs	Levies on imported goods, elevating their cost.	Customs Tariff Act of 1914 on steel imports.	Increases consumer prices, boosts local industry proportion
Quotas	Caps the quantity of imports allowed.	Caps on automobile imports.	Maintains domestic production levels
Subsidies	Financial aid to enhance competitiveness of local industries.	Export subsidies via the General Export Incentive Scheme (GEIS).	Stimulates local economic expansion
Import Licensing	Requires permits for specific imports.	Restrictions on agricultural imports.	Secures sensitive sectors

South African Protectionist Measures

Customs Tariff Act of 1914

• Implemented to guard local industries against international competitors.
• Rise in consumer costs due to steel tariffs.
• Elevated market share for domestic steel.

General Export Incentive Scheme (GEIS)

• Assists South African exporters financially.
• Boosts competitiveness of local goods internationally.
• Elevates export quantities, spurring economic progress.

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Key Arguments Supporting Protectionism

• Infant Industry Protection:

  • Definition: Protecting developing industries from overseas competition to foster domestic growth.
  • Case Study: Japan strategically protected its nascent automobile sector.
  infoNote

  Without governmental support, infant industries might fail due to stiff competition from well-established foreign players.

• Job Creation:

  • In the short term, protectionism bolsters job creation by reducing foreign competition.
  • Long-term effects: Over-reliance on protectionism can lead to inefficiencies in industries.

• National Security:

  • Crucial for protecting industries vital to national defence, such as the arms industry.
  • Scenario: Dependence on imports could endanger national security.

• Protection Against Dumping:

  • Definition: Offering products at unjustly low costs to disrupt local markets.

• South Africa enforces anti-dumping tariffs for domestic market stability.

• Safeguarding of Strategic Industries:

  • Ensures stability in significant areas like agriculture, critical for food security and economic autonomy.

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Introduction to Arguments Against Protectionism

Protectionism: Governmental strategies, such as tariffs and quotas, employed to defend local industries.

Increased Consumer Prices and Decreased Variety of Goods

• Tariffs raise consumer prices by increasing costs of foreign goods.
• Consumer options are reduced as protectionism limits the diversity of available products.

Risk of Inefficiency and Complacency

• Protectionism fosters inefficiency within industries by lessening competition.

Implications of Trade Wars and Retaliation

• Protectionist policies can lead to trade wars, with countries imposing retaliatory tariffs.
• The Smoot-Hawley Tariff (1930) exacerbated negative impacts on global trade.

Hindrance of Technological Innovation and Comparative Advantage

• Protectionism often slows technological advancement.
• It impedes the realisation of comparative advantage.

Diagrams and Visuals

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Overview of Stakeholders Affected by Protectionist Policies

• Consumers: Encounter price alterations and changes in product availability directly influenced by protectionism.
• Producers: Gain from reduced overseas competition but may face challenges with inefficiencies.
• Governments: Enact policies to safeguard local industries, influencing international relations.

Price Changes and Market Access in South Africa

Introduction: Protectionist strategies critically influence pricing and market access domestically.

Data Analysis:

Sector	Year	Pre-Protectionist Price	Post-Protectionist Price
Automotive	2010	R100	R115
Mining	2015	R150	R165
Technology	2020	R200	R230

Long-Term Economic Strategies and Human Development

• Economic Strategy: Protectionism can alter growth directions, affecting long-term viability.
• Human Development: Direct implications on employment and income distribution.

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Key Shifts and Events

• Early Developments:

  • Introduced in 1914, the Customs Tariff Act intended to protect emerging industries.

• 20th Century Policies:

  • Adjustments following WWI and WWII favoured industry protection.

• Apartheid Era Policies:

  • Economic isolation arose due to trade restrictions.

• Post-Apartheid and Modern Era:

  • Reforms in 1994 ushered in a pivotal move towards open trade.