Protectionism

practice of protecting domestic goods and service industries from foreign competition with tariff and non-tariff barriers. Protectionism causes higher prices for consumers because domestic producers are not exposed to foreign competition, and can therefore keep prices high. But domestic exporters also may suffer, because foreign countries tend to retaliate against protectionism with tariffs and barriers of their own. Many economists say that the Depression of the 1930s was precipitated by the protectionist trade barriers erected by the United States under the Smoot-Hawley Act, which led to retaliation by many countries throughout the world. In more recent years, manyprotectionist trade barriers have fallen through the passage of GATT, the General Agreement on Tariffs and Trade, which went into effect in1995, and the creation of the World Trade Organization (WTO).