Summary - Imagine walking into your favourite grocery store and seeing fewer choices and higher prices. That’s the real-life impact of the looming protectionist economic policies the US is threatening its trading partners with.
Imagine walking into your favourite grocery store and seeing fewer choices and higher prices. That’s the real-life impact of the looming protectionist economic policies the US is threatening its trading partners with. While they may appear to safeguard domestic industries in the short term, the truth is that protectionism ultimately hurts businesses and consumers -- the very economies they’re meant to protect.
To develop innovative strategies and thrive in today’s volatile economy, it’s essential that business leaders, CEOs, and entrepreneurs understand the drawbacks of protectionist policies.
The View from Up North
In response to threats from the US, Canada is experiencing a powerful wave of national pride. It’s inspiring to see how we’re coming together to support each other. Whether it’s breaking down internal trade barriers, encouraging a “shop local” mindset, or fostering homegrown innovation and commerce, there’s so much happening to bolster our domestic economy. Sites like madeincanada.ca, madeincanadadirectory.ca, and itsmadeincanada.ca are fantastic initiatives that showcase the best of what Canada has to offer. I absolutely love these efforts!
But here’s the thing...
If Canada--or any country for that matter--truly wants to thrive and build lasting prosperity, we have to think bigger. Mastering domestic sales is a crucial first step—building efficiency and a strong foundation at home. But, we can’t stop there. We need to diversify beyond our North American borders and excel in international and emerging markets.
Competitiveness is key. It’s not just about surviving—it’s about setting ourselves apart, boosting our efficiency, telling our story, and showing the world exactly what makes Canada and Canadian businesses remarkable. We need to turn the current threat into an opportunity to innovate, refine our strategies, and amplify our voice on the global stage. This is our moment to shine.
What is Protectionism?
Protectionist economic policies are government measures designed to shield domestic businesses from foreign competition. Trump’s tool of choice is tariffs (taxes on imported goods). Tariffs are often promoted by promising increased tax revenue. Although they may initially boost revenue, tariffs ultimately reduce overall sales and taxes due to a decrease in consumer and business spending. The long-term decline in economic activity outweighs any short-term gains from tariffs.
Other trade policies include import quotas (limits on the quantity of goods that can be imported), subsidies for local industries, and in extreme cases, sanctions. While these policies are often framed as tools to protect domestic jobs and industries, their long-term consequences tell a different story.
The Big Picture: Protectionism's Negative Impact
1. Protectionism limits consumer choice
An immediate effect of protectionist policies is a reduction in consumer choice. By restricting imports and favouring domestic products, protectionism limits the variety of available goods. No matter the sector, from luxury goods, like electronics and software, to essentials, such as food and clothing, a narrower selection means US consumers will see fewer options at less competitive prices.
Customer dissatisfaction, stemming from a lack of choice and high prices, negatively impacts US businesses. Previously loyal customers are more likely to seek alternatives, like gray-market imports or offshore solutions, which can have a long-lasting, irreparable effect on a company’s sales and reputation.
2. Protectionism drives up costs
Tariffs and import restrictions increase the cost of foreign goods, and often these costs are passed on to consumers. US domestic producers, relieved of competitive pressure, might also raise their prices. For the average consumer, this means fewer affordable options and a heavier financial burden.
Businesses aren’t immune to these cost increases either. Many US companies rely on imported components and raw materials to manufacture their goods. Under protectionist policies, the increased cost of imports forces businesses to reduce their profit margins, raise prices, and/or cut back on quality. These actions may be necessary to survive in a protectionist environment but they’re unsustainable and detrimental to long-term success.
3. Protectionism stifles innovation and competition
Here’s where the real danger lies for businesses. Protectionist policies often give domestic industries a false sense of security by shielding them from competition outside of the United States. While this might offer a temporary reprieve, it dampens the incentive to innovate, improve efficiency, and stay competitive on a global scale.
Over time, this stagnation weakens US industries, leaving them ill-equipped to compete when protectionist policies are eventually lifted. Complacency replaces innovation, leading to disastrous outcomes in a rapidly evolving, globalized economy. The very industries these policies aimed to protect risk falling behind.
4. Protectionism shrinks markets
Protectionist policies often trigger retaliatory measures from other countries. US trading partners, like Canada, are very likely to reply with their own tariffs. Higher tariffs and export quotas reduce market access, making it difficult and costly for US businesses to grow beyond their domestic market–a catastrophic situation for industries that rely on global trade.
For example, if the US imposes tariffs on Canadian steel, US steel producers may benefit—but only temporarily. The Canadian government could retaliate by imposing taxes on goods like wine, vehicles, or electronics, reducing export opportunities for US companies in these sectors. As a result, American businesses have access to fewer new customers and revenue streams, stifling their potential for expansion. No matter how you look at it, it’s a lose-lose situation.
5. Protectionism creates inefficiencies
Economies are powered by the exchange of wealth. Markets thrive when resources are allocated efficiently. Protectionism disrupts this balance by favouring less competitive domestic producers, often at the expense of more cost-effective foreign suppliers. This inefficiency leads to wasted resources, suppressed economic growth, and unrealized potential. Economies flourish when there are no barriers to trade and market forces determine the flow of goods and services.
Sustainable Trade Policies and Open Markets
Threats to sustainable trade policies
Sustainable trade policies (those that support labour standards, environmental protections, and human rights) have become part of the modern economy. Unfortunately, there’s a disturbing trend toward abusing these policies, with many nations broadly applying barriers and targeting innovative and forward-thinking businesses and countries. The new US administration, which represents the most powerful economy in the world, has been leading this threat to sustainable global trade.
Why open markets foster success
Encouraging Innovation: Open trade promotes competition, pushing businesses to innovate—whether by developing cutting-edge technologies or providing exceptional customer service. It also encourages the exchange of ideas across geographic and cultural boundaries, sparking creativity, driving progress and building respect on a global scale.
Expanding opportunities: With access to global markets, businesses don’t have to rely solely on domestic demand. They’re free to diversify their revenue streams and grow on a larger scale. This global strategy has been a key driver of economic growth throughout the 20th century. For instance, India's economy is projected to grow by 6.3% in 2023, with imports contributing significantly to its expanding consumer base. Similarly, Brazil, Latin America's largest economy, saw imports rise by 24% in 2022, driven by demand for goods like machinery, electronics, and consumer products. These fast-growing economies present enormous opportunities for businesses looking to expand internationally.
Lowering costs and accessing skills: Open markets give businesses access to cost-efficient suppliers, materials, and expert know-how. With a global pool of resources, companies can leverage economies of scale and competitive pricing and pass on these savings to their customers. The World Trade Organization (WTO) found that open trade policies can reduce production costs by up to 10%. McKinsey’s numbers were even more promising, stating that when businesses actively source globally and optimize their supply chains, they can see cost savings of 15-25%. All this being said … When discussing the benefits of a global supply chain, we have a responsibility for its potential human, environmental, and social consequences (subpar labour conditions, carbon emissions from transportation, and negative effects on local economies).
Meeting consumer needs: Global trade gives consumers access to a wide range of products at various price points, increasing satisfaction and loyalty. Additionally, trade facilitates the flow of information about new market opportunities. Businesses that engage in global markets gain valuable insights into emerging trends and customer demands, allowing them to adapt quickly and stay competitive. By staying informed of global developments, companies can capitalize on new opportunities and better prepare to mitigate unexpected risks, creating a more resilient and forward-thinking approach to growth.
A Call to Business Leaders
Protectionist policies might promise short-term gains, but they come at the cost of long-term success. This message goes out to business leaders and CEOs everywhere–Take action! Advocate for open markets, encourage innovation, and invest in global competitiveness. The strength of your organization—and the future of the global economy—depends on it.
At the end of the day, sustainable growth is about more than protecting your turf. It’s about recognizing the interconnected opportunities and challenges that come with globalization. Strong businesses are built not by shielding them from competition but by ensuring they have the tools and incentives to compete—and win—on a global stage.
Take action:
Canadian business leaders, leverage Canada's Trade Commissioners to support your global expansion. With insights, advice, and connections in over 160 cities, they’ll help you overcome challenges and seize international opportunities.
Talk to your politicians. Ask them to advocate for policies that promote global competitiveness, remove trade barriers and provide access to new markets.
Build relationships with local and international partners to expand your network and grow your opportunities.
