Reply #4: In theory or in reality? (Warning, my answer is comprehensive)

[Veritas_et_Aequitas]

In theory (meaning ideal free trade/economic situations) protectionism is inefficient because it ties a country's resources up doing something it's just not that good at doing but another country might be really good at doing. Let's pretend that the USA and South Korea both produce microwaves comparable in quality. For whatever reason (usually laws, company policies, unions, price of resources, etc) it costs a US company $90 to produce a microwave, but it only costs a South Korean company $70 after cost of import. From a macroeconomic standpoint, in that situation it would make more sense for the US to start buying microwaves from South Korea. This would free up resources (money, physical capital and workers) to do something that the US is particularly skilled at doing, say making airplanes. The US would make more airplanes and increase revenue. It's just an extension of the division of labor that you and I engage in everyday.

In reality it's not quite that clean-cut. Maybe South Korean companies are producing microwaves for $120 each but are receiving $50 government subsidies for each microwave made. Maybe (probably) their workers' wages are significantly lower or the factories are horribly unsafe (ie a sweatshop). Or maybe the microwave is really an inferior good (the official economic term for a good that's crappy) and is just at such a low price that domestic microwaves can't compete, even if they are top-of-the line. Whatever the cause, the South Korean manufacturers are engaging in what politicians and business owners call "unfair competition". Unfair competition occurs when one company or nation has a significant market advantage over another for what could be considered ethically/morally dubious reasons (sweatshops) or because certain laws or policies give that country's companies a major advantage (tariffs or subsidies). The United States engages in a mixed approach to global trade - Free Trade (like NAFTA), protectionism (what you're talking about), and exploitation (the US' dominance of Latin American and Caribbean grain and fruit markets).

This is where things get fun. Ideally, free trade should be the most efficient economic model. However, the countries seem to get locked into a Prisoner's Dilemma like scenario - if they both cooperate with each other and engage in fair free trade both countries will benefit and taken together their economies will be healthier. However, if one country decides to leave itself open to free trade and the other country imposes tariffs, the protectionist country will benefit more than it would via cooperation (not only is it selling more abroad, it's selling more at home through suppression of foreign competition). While one country will benefit significantly more than the other, their combined economies will not be as strong as they would be if they cooperated. If both countries distrust each other and invoke protectionist policies, they slide into a Nash Equilibrium in which neither can improve their economies without getting the other to cooperate (which is unlikely to happen). Their combined economies are weaker than both the previously mentioned scenario. Of course, again, this is all assuming perfect free trade.