How does free trade differ from protectionism?


Free trade differs from protectionism in that free trade allows countries to exchange goods and do business without restrictions, whereas protectionism sets up various types of defenses to protect national businesses and industries. Examples of these defensive measures include tariffs, subsidies for local industries, quotas on imported items and manipulation of the value of a national currency.

There are some advantages to protectionism. It protects national industries from foreign competitors, especially if they are in early stages of growth. It also stimulates job growth for local workers. However, according to the Library of Economics and Liberty, eventually protectionism weakens industries, as competition is what strengthens industries and causes them to innovate and improve. Protectionism slows economic growth and decreases investment in education.

One of the most famous acts of protectionism in United States history was the passage of the Smoot-Hawley Tariff in 1930. Though it was originally designed to protect U.S. farmers from European agricultural imports, Congress added tariffs on many other items before it became law. It restricted global trade to such an extent that it prolonged and increased the severity of the Great Depression. An example of government subsidy was the Agricultural Adjustment Act of 1933. It allowed the government to pay farmers to not grow produce, which reduced supplies and raised prices.

Free trade agreements have the opposite goal of protectionism, as they create trading partners that reduce or eliminate protectionist measures.

Q&A Related to "How does free trade differ from protectionism?"
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Free Trade is trade between nations without protective customs, while protectionism means placing of duties or quotas on imports to protect local industries. report this answer. Updated
Protectionism is when a country decides to stop trading with other nations and tries to become completely independent this however is a big mistake since it will not achieve an ideal
Free trade, also called laissez-faire is a policy by which a
1 Additional Answer Answer for: differences between free trade and protectionism
The Differences Between Free Trade and Protectionism
The global economy is set to decline for the first time since World War II. Economists have engaged in a lively debate over the benefits and pitfalls of free trade and protectionism. Many economies have adopted free-trade policy, or an economy in which... More »
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