Protectionism aims to support or protect domestic industries from foreign competition. That may take the form of subsidies to domestic producers, taxes on imports, quantitative restrictions on imports and state trading. Although protectionist policies have clearly outlined theoretical benefits, there have been few, if any, definitive real world solutions to the problem of how to balance free trade and protectionist policy to benefit domestic and international economies. This is reflected in the long historical debate on this subject with early notable works including Adam Smith’s Wealth of Nations (1776) and Alexander Hamilton’s Report on the Subject of Manufactures (1791).

This introduction to protectionism was influenced by an entry from the International Encyclopedia of the Social Sciences. After a brief explanation of tariffs the author of the entry begins to briefly outline the history of protectionism, primarily in Western industrialised countries. He states,

“The history of commercial policies … is difficult to sum up. Tariff schedules and other instruments of protectionism are complex, and there is no easy way of aggregating the individual elements. Moreover, movements toward or away from protectionism in different parts of the world have not been synchronized and have had many different causes, some special to particular countries.”

Despite the complexity of trade policy history, the author presents several factors that influence protectionism, including war, economic depression and conversely peace and prosperity. He argues that the factor that best correlates to policy change is war.

In Western industrialised nations war had a direct effect on protectionism. A need for revenue lead nations at war to set tariffs on imports and exports and to subsidise the domestic manufacture of goods specific to a wartime economy. Additionally, once a war concluded industries that were protected from external competition faced a more competitive international market, which prompted nations to leverage protectionist measures.

Another powerful influence on trade policy is an economic depression. Depressions generally lead to an increase in protectionism as a means of protecting domestic industries that are losing demand for their products. This occurred in France and Germany from 1873 until 1879 and globally during the Great Depression of the 1930s. In contrast to war and economic depression, periods of peace and prosperity generally encourage free trade policy.

Of these three influences, the economic depression has the largest influence on international intellectual property right policy (IIPR). The two recessions during the beginning of 1980s had a major impact on the birth of aggressive in the United States.

Although many commodities with IPRs were exported during that period I make a distinction between those items with zero marginal cost and physical products (i.e. piracy v. counterfeit). The non-physical and easily distributable items, which would be heavily pirated after the proliferation of the Internet, can not be as easily placed within the context of protectionist trade theory.

Q: During the 1980s why were intellectual items not protected?
A: Tariffs were not levied against foreign intellectual property because there was little to no competition with domestic production. Additionally, although these businesses may have represented the future of the American GDP, they were already wealthy businesses.

Although these items do not fit nicely into a framework of international trade theory, they have an interesting connection with protectionism. Protectionist policy is theoretically heavily dependent upon innovation. The aforementioned encyclopedia entry describes several arguments for protection, including employment, income redistribution, emergent industries, terms of trade, second-best policies, economic growth and methods of protection (see Altschiller 12pp). The most relevant and also the oldest and most “respectable” argument is the protection of emergent industries. During the 1980s the private sector argued primarily that the technology and entertainment industries needed protection because they represented emerging industries that would define the American economy in the coming decades. In fact, the reason they supported GATT (as a means of creating an enforcement mechanism absent from WIPO and just happened to be a trade agreement) was to enforce the protection of their assets.

Unfortunately, as Tim Wu outlines in his new book, The Master Switch: The Rise and Fall of Information Empires, these industries failed to continue to innovate once they gained a large, if not monopolistic, control of the market. This is reflected in protectionist theory through the argument for gains in trade, in which tariffs crowd out competition.

Q: Are bilateral or multilateral trade agreements that heavily favor American industry another form of protectionism?
A: In a broad use of the term “protectionism” the United States federal government was protecting against foreign competition that used American intellectual creations.

Oddly enough, protectionism is more heavily based on supporting innovation that the intellectual property rights, whose primary purpose should be the support of innovation. The comparison between IIPRs and protectionism is appropriate because the American IIPR policy of the 1980s can be characterized as protectionist, but fails to demonstrate the primary argument for protectionism.