Protectionism

What Is Protectionism?
Protectionism refers to government policies that restrict international trade to help domestic industries.
Protectionist policies are usually implemented with the goal to improve economic activity within a domestic
economy but can also be implemented for safety or quality concerns.

KEY TAKEAWAYS

 Protectionist policies place specific restrictions on international trade for the benefit of a domestic
economy.
 Protectionist policies typically seek to improve economic activity but may also be the result of
safety or quality concerns.
 The value of protectionism is a subject of debate among economists and policymakers.
 Tariffs, import quotas, product standards, and subsidies are some of the primary policy tools a
government can use in enacting protectionist policies.

Although economists and politicians generally have a positive view of free trade, their stance does not necessarily
discount China protectionism. Depending on the context, both protectionism pros and cons exist and can make this
principle appear favourable for certain economic sectors at certain stages.

But, why china considered as a protectionist country

The most compelling reason for China protectionism is the infant industry argument. This argument suggests that
new industries within a domestic market need help and support to allow them to grow; otherwise, mature foreign
goods will saturate the domestic market before it even has a chance to develop.

The sheer size of other markets gives a head start to well-established foreign companies by allowing them to benefit
from economies of scale, increased skills and infrastructure; therefore, it is seen as only equitable for a domestic
market to be protected to allow it to reach a more developed stage.

However, the other side of the argument is that while China protectionism to protect the domestic market and their
workforce, they actually have a negative welfare effect on exactly those aspects. The principle of comparative
advantage suggests that the gains of free trade are higher than the losses, as countries will specialize in industries in
which they have a comparative advantage.

Implementing barriers to trade can make sense under certain circumstances

but usually it has adverse effects for all countries.

The Development of China Protectionism

Over the last decade, the amount of countries implementing protectionism policies has increased again on a frequent
basis. Protectionist economic policies have to be seen in the context of relatively tough times for the global economy
and the aftermath of the financial crisis.

However, China is not so much a victim of protectionism as critics often point out the strong incentives it gives to its
domestic companies to export (such as tax cuts and other hidden subsidies). Furthermore, China has heavily
protected the direct access to its domestic market for a long time..

In line with this, one of the original purposes of the World Trade Organization (WTO) was to encourage free trade
between countries. Although the organization has a dispute process and acts as a mediator between countries, by
the time a resolution has been presented, China’s protectionism trade policy may have already been in place for
several years.

The Future of China Protectionism

Many economists believe that China protectionism is actually detrimental to the overall global economy. While it is
true a country imposing certain measures may improve their own situation in the short-run, it is also likely the
protectionist country will also have import restrictions imposed against them.

It creates an unfavorable circumstance, and artificially tries to manipulate the process of globalization to a countries
own gain. If only one country participated in such measures, that country would benefit, but as soon as other
countries react with similar methods, everyone ends up losing.

Quotas & Restrictions: Non-Tariff Barriers To Trade In China

Non-Tariff Barriers to Trade are used to restrict the amount of imports. Annual quantity or value limits for certain
goods are determined. China Import Quotas are limited to a few countries & products. A tariff-rate quota is similar
since duties for goods increase after a certain amount. Tariffs and quotas are similar.

China import quotas, as the most important non-tariff barrier, are one of the various ways countries try to protect their
own domestic market from the adverse effects of an influx of exports of other countries.

China has been particularly stringent in ensuring that there are compulsory limits imposed against
goods produced abroad and sold within the country. However, this scenario is not exclusive only to
China: many countries around the world impose such restrictions.

A quota generally takes the form of a limit in terms of quantity or value, setting a quantifiable
boundary restricting the amount of goods to be imported into (or exported from) the country. It is a
key tool in the arsenal of barriers of trade.

Absolute Quotas and Tariff-Rate Quotas

An absolute quota is when there is a numerical restriction imposed over a certain period of time. If
that quota is met before the end of the period, the quota is considered filled and no further goods are
allowed to enter into the country. There are China import quotas with this absolute restriction.

A tariff-rate quota is slightly different. During the quota period, merchandise is allowed to be entered
at a reduced rate of duty. There is no limit to the volume of goods. However, all further merchandise
will be subject to a higher rate of duty after this period. There are also China import quotas with this
relative restriction.

Motivations and Effects of Imposing Quotas

The motivation to impose quotas may be hard to understand, especially when free trade is
considered to be a beneficial process. The underlying motivation is usually just to reduce imports into
a country in an effort to increase the domestic production of a specific good or service.

The restrictions are imposed to protect infant industries of a country for a limited time, which is
frequently seen as a legitimate use of trade quotas particularly for developing countries.
Through restricting foreign competition and hence the simple economic principle of supply and
demand, imported goods artificially rise in price and stimulate the demand for higher priced domestic
goods.

While domestic producers are favourable to import quotas, as they benefit from the increased
demand and protection of their profits, there is a negative effect on the domestic consumers. They
are now the ones who are having to pay the artificially higher price, and these trade policies do not
work in their favour.

When such restrictions are imposed, there can be various side effects resulting from it. Smuggling
and corruption are common as firms offer incentives to officials to allow their goods to be approved.

Non-Tariff Barriers to trade (NTBs) often have a political motivation as recently seen
between the EU/US and Russia.

China Import Quotas and Other Specific Restrictions

China has a long history of imposing non-tariff barriers in an effort to control the imports into their
country. The food industry within China is especially notorious for the non-tariff barriers imposed,
which are relatively recent.

The country enforces strict sanitary rules, requiring significant administrative requirements consisting
of vast amounts of documents and health certificates. This is only one example, with others including
strict labeling requirements consisting of detailed nutritional components as well as the Chinese
language being mandatory.

Currently, specific China import quotas apply to more than 40 categories of goods, including watches,
cars, some textile products and also certain kind of foods. However, most of them are quite old and
China has been gradually eliminating its import quotas and is commonly expected to continue this
process.

North Korea was also recently subject to a trade embargo by China, which might be surprising. It
acted in line with the United Nations (UN) who initiated and enforced various sanctions upon the
country.

Interestingly, China has 26 non-tariff imposed against South Korea, an extreme amount when
compared with the next largest number of 5 against Indonesia. They are mainly focusing on tougher
sanitary regulations as well as China only recognizing certifications issued by the Chinese Food and
Drug Administration. This can already be seen as an aspect of a trade war, which is covered in
another wiki article, where these measures play an important role.