A list of some modern day protectionist measures, including tariffs, domestic subsidies to exporters, and non-tariff barriers which restrict imports. This is only a partial list, there are many more examples.
In recent decades, average tariff rates have fallen, as we have come closer to free trade. However, there are still many protectionist measures, with tariffs on specific goods. These are a few modern day examples of protectionism, (which will be helpful for A2 students studying global economics)
1. EU Common Agricultural Policy (CAP). Despite reforms and some reduction in tariff rates, the EU still impose substantial tariff rates on many agricultural markets. The aim is to increase prices for domestic European farmers in order to increase their income.
The table below suggests that some agricultural products, e.g. beef and diary, have very substantial tariff rates of over 75%. For example, there are 54 dairy products which have tariff rates of more than 75%
In addition EU farmers benefits from the domestic subsidies of the CAP which help give an advantage in exports.
2. Banana wars. For a long time, there were substantial tariffs on banana imports from Latin America. Exporters had to pay €176 (£141) per tonne of bananas. But, in 2012, an agreement has seen these tariffs reduced. (Banana wars )at Telegraph
3. Tariffs on imports of Chinese tyres into US. The US imposed tariffs of 35% on imports of tyres from China. This tariff was upheld by WTO (FT)
4. Argentina food tariffs. Argentina has increased imports duties on 100 products, including over a dozen agricultural goods under the Mercosur Common External Tariff (CET). (Agra.net). In this example, tariffs on the import of milk powder were increased to 9% after record levels of imports and fears Argentinian farmers would suffer falling incomes. (Argentinian milk powder tariffs)
5. Escalated tariffs. This occurs when higher tariffs are placed on processed food. This creates a disincentive for countries to process and add value to the raw commodity. For example, a WTO report found that the average EU tariff on primary food products (in 2008) was 9.9% but for processed food products it was more than twice as high, at 19.4%. This is for the EU’s MFN (most favoured nation) (Protectionist measures)
‘Dumping’ occurs when firms sell goods below a ‘fair market price’ e.g. below cost, because of excess supply. This can flood a domestic market with cheap imports and make it difficult for domestic firms to stay in business. In this case, countries may justify tariffs on the grounds they are preventing this damaging effect of dumping.
Tariffs are justified by the WTO, if you can prove dumping is occurring.
- China tariffs on imports of stainless steel tubes from EU and Japan. Tariffs vary between 9% and 14% (BBC Link)
Another form of protectionism occurs when a country gives a subsidy or support to a domestic export industry. This gives the exporters an unfair advantage in the world market.
1. Subsidy of European airlines. For example, European airlines have been criticised for receiving ‘unfair’ support from their government. Though European governments respond they were just preventing the airline going bust. This article from the Economist, suggests that the practise of subsidising European airlines has been declining.
2. China subsidies for its car industry. In 2012, the US filed a complaint that China was given excess subsidies to its car industry giving unfair competitive advantage.
USTR said the targeted export bases made at least $1 billion in subsidies available to auto and auto-parts exporters in China during the years 2009 through 2011. (link)
3. Calls for tariffs on imports of solar panels from China. (China Daily)
Growth of Red Tape
Rather than put tariffs which break WTO rules, some countries prefer to strangle trade by imposing red tape, bureaucracy and things which increase the administration cost of trading. This has the same effect of discouraging imports. For example, the increasingly stringent standards set by the private sector in the area of certification and traceability create difficulties for developing countries exports. (EU Protectionist measures)
An increasingly popular method nowadays is to strangle traders not with high tariffs, which are easy to spot, but with red tape, which is not. Protectionism Alert at Economist
Types of Protectionism
- Tariffs – This is a tax on imports.
- Quotas – This is a physical limits on the quantity of imports
- Embargoes – This is a total ban on a good, this may be done to stop dangerous substances
- Subsidies – If a government subsidises domestic production this gives them an unfair advantage over competitors.
- Administrative barriers – Making it more difficult to trade, e.g. imposing minimum environmental standards.
Why Trade Protectionism?
Countries may impose tariffs on goods because:
- Infant industry argument – protect new industries
- Diversify the economy – help develop new industries to give more diversity to economy
- Raise revenue
- Protect certain key industries from international competition to try and safeguard jobs.
- Protect domestic jobs which are threatened by rise of imports.