Written by Paige Stephens
The volatile global economy has seen a re-emergence of complex and unpredictable trade policies. As impulsive and powerful governments such as the Trump administration attempt to strengthen domestic industries, the media frequently discusses protectionism. Despite its relevance in the global economy, many are not fully aware of the issue. So, what is protectionism? How does it affect the world? How can New Zealand be affected by its unpredictable nature? This article explains how protectionist policies affect global trade, diplomacy and living standards and discusses direct effects on New Zealand.
What is protectionism?
Recently, protectionism has been a frequent strategy in global economic policy, most commonly in the form of tariffs. Protectionism, as defined by Thies & Nieman (2011), is the use of trade policies that restrict the importation of foreign goods into a domestic market through financial or inconvenience-based incentives. Sumner, Smith, and Rosson (2001) define the two main protectionist measures. Firstly, tariff barriers: taxes on imports with the underlying purpose of protecting domestic industries and generating government revenue. The second form of protectionism is non-tariff barriers, including quotas, technical standards, and licensing requirements, which restrict trade by increasing the difficulty of importing. Despite the appearance of strictly negative media attention, protectionism can benefit domestic industries if used in moderation and with respect for other nations and markets. For example, the 2002 U.S. steel tariffs temporarily protected domestic U.S. steel producers by reducing foreign competition, boosting production and jobs (McGee & Yoon, 2017). But it is essential to recognise that although protectionism may sound favourable in theory and sometimes has positive implications, global disruptions and tensions are common (Peres, 2025).
Negative Implications of Protectionism
Ironically, protectionism has been commonly found to undermine economic efficiency rather than promoting it. A frequent misconception by consumers, or perhaps a manipulation by governments, suggests that tariffs will always reduce domestic market prices (Ikenson, 2018). Many consumers instead attribute price increases to inflation, instead of the direct impacts of tariffs as a result of misguided expectations or understanding (Simon-Kucher & Partners, 2025). Despite government efforts, such as the White House claiming the Trump administration’s tariffs will provide long-term relief for American consumers on essential goods, recent studies suggest the opposite. A survey by Feigenbaum & Romalis (2025) estimates that a 25% tariff on goods from Canada and Mexico and a 10% tariff on goods from China could add as much as 0.8 percentage points to core inflation, ultimately making goods more expensive for the consumer.
Further support from Rozen Bakher (2021) suggests that tariffs reduce market competition, straining international trade relationships, and fostering economic nationalism by prioritising domestic industries over global integration. For consumers, this results in higher prices driven by limited competition, restricted supply, and increased demand. In contrast are liberal trade policies: the removal of trade barriers which enables highly competitive markets and keeps prices low for consumers, promoting global economic growth and stability (International Monetary Fund, 2001). By fostering open markets, these policies create a more competitive environment for businesses, which in turn drives innovation, efficiency, and broader economic development.
So how bad are the repercussions of protectionism? Ultimately, protectionism worsens living costs for citizens in all nations involved. Furceri et al. (2019) claim that protectionist nations suffer from limited market competition and inflated prices due to constrained supply; meanwhile, targeted countries experience less export demand, harming national GDP. Furthermore, protectionism brings harmful deglobalisation effects, defined as the weakening of interdependence between nations which discourages foreign trade (Witt, 2019).
To make matters worse, protectionism will not allow for economic growth, as supported by the International Monetary Fund (2001), stating that it has not been plausible for any country in recent decades to experience economic growth without globalisation. Further global impacts of protectionism, as supported by the International Monetary Fund (2025), include how erratic trade policy erodes investor confidence and destabilises markets. Ironically, fear of financial crisis, justified or not, sets in motion a self-fulfilling prophecy—the occurrence of economic instability through expectations and predictions of said instability (Minneapolis Federal Reserve, 2016).
Protectionist Escalation – How can New Zealand be affected?
Constrained by geographic location and a scarce domestic market, New Zealand is a prime example of a trade-dependent economy (McCann, 2003). The U.S. government holds 10% tariffs on New Zealand, which is expected to decrease export earnings by $900 million for the New Zealand economy (Beckford, 2025). Not only is this devastating for the New Zealand working class, but it is also shocking, as interdependence between NZ and the U.S. has been previously supported and underpinned by the 1992 Trade and Investment Framework Agreement (United States Trade Representative, 2023).
Furthermore, New Zealand’s exposure to geopolitics, particularly between China and the U.S., poses a complex dilemma amid the China-U.S. trade war. Hurst & Ni (2021) suggest that while New Zealand has long committed to independent foreign policy and neutrality, global pressures constantly challenge this sovereignty. Involvement in the Five Eyes intelligence alliance with the U.S., the United Kingdom, Canada and Australia suggests an alignment with Western agendas, a flaw in this diplomatic juggling. In recent years, pressure has increased from the Five Eyes, including coercion to publish joint public statements regarding human rights concerns in China (Zheng, 2021). This highlights the ongoing challenge for the New Zealand Government: balancing domestic policy and alliances with vital international economic ties.
A Western bias from New Zealand risks jeopardising a critical relationship with China, the nation’s largest trading partner. China has demonstrated a willingness to retaliate against diplomatic disagreements, evidenced by the 2020-2021 import bans on Australian goods in response to a call for an independent COVID-19 inquiry (Walsh, 2021). For New Zealand, the pressure is high: in 2020, 30% of New Zealand’s exports were sold to China (World Bank 2020). Losing Chinese consumers would devastate the New Zealand economy, a considerable threat developing from the geopolitical tensions of protectionism.
Summary
Protectionism: a trade policy that restricts imports through tariffs or non-tariff barriers to protect domestic industries can provide short-term benefits such as job preservation and industry support; however, it often leads to higher consumer prices, reduced market competition, and strained international relations. Over time, protectionism will contribute to deglobalisation, harming economic growth and increasing living costs for all involved nations. New Zealand, heavily reliant on international trade, is especially vulnerable, facing risks from U.S. tariffs and pressure to align with Western allies, which could jeopardise vital economic ties with China. Protectionism, though appealing for national industry development, generally destabilises global markets and damages long-term economic prospects.
References
Beckford, G. (2025, April 11). WTF: Weird tariff frenzy – What it means for NZ and the world. RNZ. https://www.rnz.co.nz/news/on-the-inside/557790/wtf-weird-tariff-frenzy-what-it-means-for-nz-and-the-world
Feigenbaum, J., & Romalis, J. (2025). The impact of tariffs on inflation. Federal Reserve Bank of Boston. https://www.bostonfed.org/publications/current-policy-perspectives/2025/the-impact-of-tariffs-on-inflation
Furceri, D., Hannan, S. A., Ostry, J. D., & Rose, A. K. (2019). Macroeconomic consequences of tariffs. Journal of International Economics, 117, 138–153. https://doi.org/10.1016/j.jinteco.2019.01.001
Hurst, D., & Ni, V. (2021, April 23). New Zealand’s stance on China has deep implications for the Five Eyes alliance. The Guardian. https://www.theguardian.com/world/2021/apr/23/new-zealands-stance-on-china-has-deep-implications-for-the-five-eyes-alliance
Ikenson, D. J. (2018). Tariff Myths, Debunked. Cato Institute. https://www.cato.org/commentary/tariff-myths-debunked
International Monetary Fund. (2025, April 22). Global Financial Stability Report: The Last Mile—Financial Vulnerabilities and Risks. International Monetary Fund. https://www.imf.org/en/Publications/GFSR/Issues/2024/04/16/global-financial-stability-report-april-2024
International Monetary Fund. (2001). Global Trade Liberalisation and the Developing Countries. IMF Issues Brief. https://www.imf.org/external/np/exr/ib/2001/110801.htm
McCann, P. (2003). Geography, trade and growth: Problems and possibilities for the New Zealand economy. The Treasury New Zealand. https://www.treasury.govt.nz/publications/wp/geography-trade-and-growth-problems-and-possibilities-new-zealand-economy-wp-03-03The Treasury
McGee, R. W., & Yoon, Y. (2017). A close look at the U.S. steel industry: Protective tariffs and their effect on the economies of East Asia. SSRN. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2858439
Minneapolis Federal Reserve. (2016). Self-Fulfilling Prophecies in Sovereign Debt Markets. https://www.minneapolisfed.org/~/media/files/pubs/eppapers/16-8/epp-16-8-self-fulfilling-prophecies-in-sovereign-debt-markets.pdf
Peres, A. (2025, March 12). The geopolitics of trade tariffs: The new Trump presidency. House of Commons Library. https://commonslibrary.parliament.uk/the-geopolitics-of-trade-tariffs-the-new-trump-presidency/
Rozen-Bakher, Z. (2021). Restrictions on International Trade and Foreign Direct Investment (FDI): Nationalism-Mercantilism versus Trade Liberalism. Research Paper, PD9. https://www.rozen-bakher.com/research-papers/pd9
Simon-Kucher & Partners. (2025). How tariffs are shaping consumer sentiment and spending. https://www.simon-kucher.com/en/insights/how-tariffs-are-shaping-consumer-sentiment-and-spending-2025
Sumner, D. A., Smith, V. H., & Rosson, C. P. (2001). Tariff and Non-Tariff Barriers to Trade. Institute for Agriculture and Trade Policy. https://www.iatp.org/documents/tariff-and-non-tariff-barriers-to-trade-0
Thies, C. G., & Nieman, M. D. (2011). Protectionism. In B. Badie, D. Berg-Schlosser, & L. Morlino (Eds.), International Encyclopedia of Political Science (Vol. 7, pp. 2105–2107). Thousand Oaks, CA: SAGE Publications
United States Trade Representative. (2023, April 5). United States and New Zealand meet under bilateral Trade and Investment Framework Agreement. https://ustr.gov/about-us/policy-offices/press-office/press-releases/2023/april/united-states-and-new-zealand-meet-under-bilateral-trade-and-investment-framework-agreement
Walsh, M. (2021, January 2). Australia called for a COVID-19 probe. China responded with a trade war. ABC News. https://www.abc.net.au/news/2021-01-03/heres-what-happened-between-china-and-australia-in-2020/13019242ABC
Witt, M. A. (2019). De-globalisation: Theories, predictions, and opportunities for international business research. Journal of International Business Studies, 50(7), 1053–1077. https://doi.org/10.1057/s41267-019-00219-7EconPapers+5
World Bank. (2020). New Zealand Trade Summary 2020. https://wits.worldbank.org/CountryProfile/en/Country/NZL/Year/2020/Summarytext
Zheng, S. (2021, April 19). New Zealand ‘uncomfortable’ with growing scope of Five Eyes, says foreign minister. South China Morning Post. https://www.scmp.com/news/china/diplomacy/article/3130094/new-zealand-uncomfortable-growing-scope-five-eyes-members
