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Contemporary Forms of Protectionism in the European Union

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B) Contemporary forms of protectionism in the European Union

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INDEX

  1. Definition of protectionism…………………………3

  1. Forms of protectionism in the European Union..3-4
  1. Actuality and conclusion…………………………….4

Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas and a variety of other government regulations, thus making such goods more expensive so that it is not profitable. Advocates claim that protectionist policies protect producers, companies and workers in the sector that compete with imports from foreign competitors in the country. However, they also reduce trade and negatively affect consumers in general (by increasing the cost of imported goods and services) and harm producers and workers in the export sectors, both in the country that applies protectionist policies and in the protected countries.

After explaining the definition of protectionism, we will explain the different forms of protectionism.

  • Protection of technologies, patents, technical and scientific knowledge.

  • Prevent foreign investors from taking control of national companies.

  • Tariffs: In general, tariffs (or taxes) are applied to imported goods. The tariffs generally vary according to the type of imported goods. Import tariffs will increase the cost for importers and increase the price of imported products in local markets, thus reducing the amount of imported goods, to favour  local producers. Tariffs can also be imposed on exports, and in an economy with fluctuating exchange rates, export tariffs have similar effects to import tariffs. However, since export tariffs are often perceived as "harmful" to local industries, while import tariffs are perceived as "subsidies" to local industries, export tariffs are rarely implemented.
  • Import quotas: to reduce the quantity and, therefore, increase the market price of imported goods. The economic effects of an import quota are similar to those of a tariff, except that the tax revenue income derived from a tariff will be distributed to those who receive import licenses. Economists often suggest that import licenses be auctioned off to the highest bidder, or that import quotas be replaced by an equivalent tariff.
  • Administrative barriers: Countries are sometimes accused of using their various administrative rules (for example, in relation to food safety, environmental standards, electrical safety, etc.) as a way to introduce barriers to imports.
  • Anti-dumping legislation: "dumping" is the practice of companies that sell to export markets at prices lower than those charged in domestic markets. Proponents of anti-dumping laws argue that they prevent the importation of cheaper foreign goods that would cause the closure of local businesses. However, in practice, anti-dumping laws are generally used to impose trade tariffs on foreign exporters.
  • Direct subsidies: government subsidies (in the form of lump sum payments or cheap loans) are sometimes given to local companies that can not compete well against imports. It is said that these subsidies "protect" local jobs and help local businesses adapt to global markets
  • Export subsidies: governments often use export subsidies to increase exports. Export subsidies have the opposite effect of export tariffs because exporters obtain payment, which is a percentage or proportion of export value. Export subsidies increase the volume of trade and, in a country with floating exchange rates, have similar effects to import subsidies.
  • Control of exchange rate: A government can intervene in the currency market to reduce the value of its currency by selling its currency in the currency market. If it does, the cost of imports will increase and the cost of exports will decrease, which will lead to an improvement in its trade balance. However, such a policy is only effective in the short term, since it will lead to higher inflation in the country in the long term, which in turn will increase the real cost of exports and reduce the relative price of imports.

Currently, we are witnessing a strong protectionism in the world economy, initiated by the US, due to the economic policies of its president, Donald Trump, which decided to aggravate the imports of aluminum and steel from the community. This forced the UE  to apply tariffs of 2,800 million euros to products of US origin in retaliation for the decision of the Trump Government.

This measure was criticized by Donald Trump who threatened to apply 20% tariffs on imports of UE vehicles.

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