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Economic Viewpoint

Protectionism: A brake on economic growth

February 17, 2017
François Dupuis, Vice-President and Chief Economist • Francis Généreux, Senior Economist

Following decades of trade globalization, protectionism now seems to be more fashionable, particularly with the arrival of Donald Trump in the White House. Should we be worried about the new trend? Because liberalizing trade had generally positive effects on the global economy, closing markets would inevitably be bad. Moreover, a rise in tariffs and trade barriers does not only hurt the targeted countries: it hurts the national economy as well. Generally, such policies domestically trigger price increases, declines in real income, a drop in productivity and currency appreciation that largely cancels out the desired impact on the trade balance. The worst scenario would, of course, be the start of a trade war in which tariffs, restrictions and reprisals would spread to several major countries. However, the benefits of free trade should not mask the problems experienced by the sectors and communities affected by globalization. Better public management there would help convince the public that protectionism is not a good solution.