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For centuries, political leaders have promised that protectionism will make their nations stronger. Higher tariffs, tighter industrial policies, subsidies for local producers and regulatory barriers are routinely framed as tools to defend jobs, rebuild domestic manufacturing and secure economic independence. In times of uncertainty – geopolitical tension, supply chain disruption, inflation – these policies become even more politically attractive. They offer a simple story: close the doors, protect what’s ours, and prosperity will follow.
But history, economics and modern case studies tell a very different story. Protectionism rarely builds prosperity. More often, it creates distortion, inefficiency and long-term decline.
In my upcoming book, The Global Standard, I explore the new rules shaping international success for founder-led companies, and the myths about international business that have constrained the ambitions of founders and policymakers alike. The first of those myths is that protectionism builds prosperity, and I’m here to show you that history argues otherwise.
The Global Return of Protectionism
In the early 2020s, the world saw a remarkable resurgence in protectionism. In the United States, the second Trump administration introduced sweeping tariffs under the “America First Trade Policy,” levying a baseline 10% tariff on imports from more than 100 partners — including long-standing allies. Strategic industries such as steel, aluminium and automotive products faced even heavier duties. The message was clear: self-reliance would restore economic strength.
Across the European Union, the rhetoric was different but the mechanism the same. Policies framed around climate leadership and economic security — from green industrial subsidies to new “strategic autonomy” measures — functioned as de facto trade barriers. Tariffs on Chinese electric vehicles were expanded in 2024 and 2025 to shield domestic manufacturers under the guise of combating “unfair subsidies.”
In China, protectionism took the form of state-driven self-sufficiency. Massive subsidies for semiconductors and AI technologies, paired with export controls on critical minerals, reinforced Beijing’s determination to dominate key industries.
Different motivations, different narratives — but the same outcome: reduced openness and growing economic friction.
The Economics: Tariffs Increase Costs and Reduce Competitiveness
The promise of protectionism is simple: tariffs will protect domestic industries, allowing them to grow. The reality is that tariffs act as a hidden tax on households and businesses.
When tariffs are imposed on imported goods, prices rise — not just for consumers buying the imported items, but also for domestic manufacturers who rely on imported components. During the US–China tariff war that began in 2018, a 20% tariff on washing machines drove retail prices up by as much as 12%. Tariffs on steel and aluminium increased input costs for American manufacturers, eroding the very competitiveness the policies were meant to foster.
Protectionism also reduces the pressure on domestic industries to innovate. Competition is the engine of productivity. When firms are shielded from global rivals, the incentive to improve quality, upgrade processes or reduce costs weakens. The result is stagnation.
History’s Warning: Protectionism Creates Long-Term Weakness
Few countries illustrate the long-term cost of protection as vividly as Australia. From Federation in 1901 through the late 20th century, high tariffs insulated local manufacturers from global competition. The outcome was predictable: industries became complacent, inefficient and dependent on government protection. When commodity prices fell in the 1970s, the underlying weakness of these sheltered sectors was revealed. Only when Australia dismantled protectionism in the mid-1980s — as part of a broader program of deregulation, privatisation and exchange rate reform — did productivity surge, ushering in three decades of uninterrupted economic growth.
Brazil’s automotive industry provides another cautionary tale. For decades, high tariffs and state incentives attracted global automakers but simultaneously suppressed innovation. Isolated from competition, Brazil’s automotive sector slowly fell behind global standards. By the 2020s, analysts described it as “a dream rusting in the jungle” — a potent symbol of how protective walls become cages.
The EU’s Common Agricultural Policy offers yet another example. Designed to stabilise prices and protect farmers after World War II, the CAP eventually generated “butter mountains” and “wine lakes,” inflated consumer prices, and undermined agricultural industries in developing nations unable to compete with heavily subsidised European exports. Reforms have addressed the worst excesses, but the structural distortions remain.
These examples show the same pattern: protectionism may deliver short-term political wins, but it creates long-term economic losses.
Retaliation: The Inescapable Domino Effect
Tariffs seldom occur in isolation. When one nation raises barriers, its trading partners respond. This is how trade wars begin — and trade wars rarely have winners. The Smoot–Hawley Tariff Act of 1930 is the textbook example. Intended to protect American farmers and manufacturers during the Great Depression, it triggered retaliatory tariffs worldwide. Global trade collapsed, unemployment soared and the Great Depression deepened.
Modern trade conflicts are less dramatic but no less damaging. The US–China tariff exchanges of the 2010s and 2020s disrupted supply chains, raised costs worldwide and weakened trust in global trade institutions.
The Illusion of Safety
Protectionism appeals because it offers the illusion of safety in an uncertain world. But walls don’t make economies strong — they make them brittle. True economic resilience comes from openness: competing, learning and integrating with global markets.
Countries that embrace intelligent openness — supported by strong institutions, diversified trade relationships and technological innovation — thrive. Those that turn inward stagnate.
The Bottom Line for Business Leaders
Despite today’s noisy political environment, the long-term trend remains unchanged: open economies outperform closed ones. For businesses, this means the global opportunity is still vast — and increasingly accessible. Technology, logistics and digital platforms have lowered barriers to international expansion, even as governments flirt with protectionism.
The world remains open for those willing to reach beyond their borders.
