Protectionsim

BUSI604: Forum 3 – Protectionism

Jeletha Sessions

Liberty University

Dr. John Karaffa

September 5, 2014

Key Term and Why I am Interested in it

After reading the textbook, I decided to conduct my research on protectionism. Protectionism is an economic policy of applying sales tax on imported goods, foreign ownership of domestic assets, and anti-dumping laws, which are meant to protect domestic industries from foreign takeover (Satterlee, 2014, p 124). Protectionism contrasts free trade, where governments do not have protective barriers. I am curious to know to know the advantages and disadvantages of protectionism. In addition, I want to know how nations with the protectionism policy maintain a successful economy with restrictions on foreign investments.

Key Term

Trade protectionism is used by nations when they believe their businesses are being ruined by unfair competition from foreign companies. It is a defensive mechanism, and is often politically driven. These countries use an assortment of ways to protect their trade. One way is to demand tariffs or sales tax from imports. This instantaneously raises the value of the imported goods, making them less competitive when compared to the domestic country goods. A second method of protectionism is when the government supports local industries with tax incentives or other forms of payments. Again, this lowers the price of domestically manufactured goods and services because now the goods are inexpensive even when shipped overseas. This works well with nations that mostly rely on exports. A third method is by restrictive quotas on imported goods, which regulates the volume of trade between nations. Restrictive quotas are one of the most effective ways of protecting trade, since the foreign country cannot have a higher shipping volume than the domestic country. A fourth form of trade protectionism is a lower currency value to make its exports cheaper and more competitive. For example,...