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Large economies like the US and China use tariffs as trade weapons while retaining competitiveness because they have the critical mass to encapsulate supply chains and avoid the cost of cross-border inefficiency.

Smaller economies cannot avoid the domestic costs associated with cross-border trade because they cannot avoid depending on cross border trade for supply chains.

Are these statements correct?

If so, does this lead to divergent trade strategies different sized economies?

Do smaller countries typically lean towards much freer trade out of necessity, while the largest economies like China and the US can afford and possibly even benefit from protectionism?

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This is partially opinion-based. Even if we were able to calculate all the effects, we can still argue if variant A is better than variant B or vice versa.

I don't think that protectionism is suited to any economy. It typically protects local producers at a cost for local consumers. Local producers have less competition on local market, which allows higher prices or worse products, lower efficiency and so on. The winner is not the nation/state. The winner is just the producer, at expense of consumers.

Considering just relations between two states, protectionism damages both of them. It prevents usage of comparative advantages.

It might look like some big players like USA can more or less ignore rest of the world and produce locally everything they need. Well, they probably can, but at some cost. They can ignore manufacturing in China and build phones locally. Those phones would be quite more expensive and less competitive on both local and global market. They can force some advantage for local vendors on local market (at some cost for local consumers), but this does not help the companies on global market. Even with comparable level of isolation, United States could be richer than, say, North Korea or Iran. But they would be nowhere as rich as they are now.

By the way, there is some evidence of damages of de facto protectionism in large countries: sanctions on Russia. You might argue this is not protectionism. However, it has quite similar consequences – it inhibits international trade. The reason does not matter, the result seems to be the same.

Maybe it would be more disasterous* for a small country. But I don't think protectionism is useful even for large country.

*) in per-capita metrics

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  • $\begingroup$ Thank you. Large economies can affect the world price of a good g. Does this mean that they can, in effect, have overseas consumers pay (at least in part) for their protectionist measures? Furthermore, large economies can “fit” entire supply chains inside their tariff wall. Does this change the cost/benefit calculus? $\endgroup$ – Ben Jun 20 at 20:06
  • $\begingroup$ @Ben You are right, both parties have some costs for protectionism. But I cannot see how protectionism can be beneficial. Imagine that most of the world would join, say, USA. (For sake of the argument, ignore all the related difficulties and consider all the USA as developed.) There would be just two states – USA and India. USA would be able to produce all they need. However, it would still make sense to trade with India due to their low wages. (See comparative advantages.) $\endgroup$ – v6ak Jul 5 at 9:56
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There’s obviously a lot of discussion on this in economics and the answers are mixed.

The book How Asia Works gives examples of how protectionism helped many Asian countries develop in the 80s:

What he argues is that spending governmental subsidies on “infant industries” alone is not sufficient. The Asian countries that succeeded entering high technology industries conditioned subsidies on exports.

However, foreign countries (USA and Europe for example) really don’t like this and may charge tariffs to try and stop competitions countries from developing industries. It turns out though, that for political reasons import-heavy countries will deal with the competition for lower prices. So to some extent, a little protectionism has been shown to work. For other examples, Ha-Joon Chang’s book Bad Samaritans details the history of small countries successful protectionism (USA and England a long time ago used protectionism for instance).

Import-heavy large economies tend to prefer free trade because it makes their imports cheaper (mutually low tariffs) and Export-heavy large economies prefer free trade for similar reasons.

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No -- protectionism is viable for small economies.

This is illustrated by various "Buy Local" movements which operate on scales as small as a single city.

I'm not aware of any studies examining the overall economic impact of this approach, but they don't seem to be losing any popularity.

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    $\begingroup$ “Buy local” movements differ from protectionism at the nation-state level in that they are (as I understand it?) optional. $\endgroup$ – Ben Jun 17 at 17:28

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