How protectionism helps, not hurts, developing nations

State intervention has made a comeback. States have, in one way or another, always intervened in markets to develop specific industries and push innovation. But there has been a renaissance since the 2010s, particularly with respect to industrial and trade policy.

There are many reasons for this. The fallout from the global financial crisis in 2007–08, increasing geopolitical tensions, and efforts to strengthen domestic manufacturing in the wake of supply chain disruptions are a few of the leading factors.

Alongside the comeback of state intervention, experts are chiming in on what state-led growth strategies should look like. They highlight different things, but one piece of advice is recurring: these strategies need to incentivize exports and shy away from protectionism.

Governments are right to focus on exports. But the story about protectionism is more complicated. In fact, in most cases of successful industrial and trade policy, a push for exports has been combined with elements of protectionism.

South Korea and Taiwan are good examples. These countries transformed their economies from low-income to high-income at lightning speed, needing only 30 years to do so (from roughly 1960 to 1990).

They achieved this feat through meticulously crafted policies, and export-orientation was a key feature. In a speech in 1965, the South Korean president, Park Chung-hee, called exports “the economic lifeline” of the country. But protectionism was equally important.

Emergency tariffs were often imposed on items with excessively high import growth. In addition to this relatively visible measure, a range of covert protectionist measures were used. For example, a number of special laws on most imports almost invariably meant that