Free Trade vs Protectionism

[DaniTheHero]

I'm not exactly sure which one is better when, if one is even objectively always better.

[Vellsi]

If you have free trade other nations will be able to get large amounts of goods from you if they are cheaper (after paying for trading and import/export costs). This means your market becomes vulnerable to cost fluctuations and getting drained by nations with lots of wealthy people and convoys.
The upside is that it lets you produce a lot of a good that you otherwise would not be able to put to use in your nation, as you get a bonus to trade route competitiveness, which means other nations will prefer your trade routes over other nations' trade routes (provided price is similar).

If a nation with free trade exports coffee to another nation that already has an import route with a different nation it's likely the free trade nation will displace the trade route over time. Reputation between nations also plays a role and so do age/runtime of the trade route, making it a bit difficult to gauge at which point it flips. That can be a huge advantage when it comes to dominating a market.


Because your market is always open it also means that others might just buy up everything you have, leaving you with shortages or unable to produce. That's the downside and why tariffs are useful. They'd allow you slap a cost onto exporting or importing, which makes it less attractive to buy/sell to your market. That keeps others away from messing with your supply/demand.


To give you an extreme example to illustrate this a bit:

Say you (or your Trade Union) control all oil in the world and you have free trade enabled. Every nation in the world would buy the oil from you and in doing so drain your entire market, as demand likely exceeds supply. This means you'd have no oil left to use productively on production methods or to run your advanced military economy late in the game. It also drastically reduces the profitability of your businesses that want to consume oil, as price would always be high.

With protectionism on the other hand it becomes possible to slap at hefty 45% surcharge tariff on the cost of the oil, making it very unattractive to buy. Other nations might just stick to switch away from oil production methods and use coal as fuel instead, reducing the amount of oil the import from you, giving you more to work with. Even if they are still buying the oil, they'd have to subsidize buildings to keep them profitable, while you get huge swathes of crash from the tariff income. You'd benefit greatly while they transfer a lot of wealth to your nation over time.

edit:
The same applies in reverse. If you market is open others will import goods to you. That can make it unviable to produce in your own factories, as goods flooding the market keeps prices so low that there's no margin. This causes a drop in standard of living and might cause unemployment and radicals. The upside is that whatever good is being imported would be much cheaper than you could produce it, so whoever consumes/uses that good gets to benefit.

If you want to build up production for something you aren't yet good at and need to ensure buildings are profitable, it might be a good idea to slap an import tariff on it. Even if someone imports so much of a good that your own buildings producing the same good aren't being fully employed you'd be able to offset some of the cost subsidizing buildings costs with the income from the tariffs.

You should also be aware that Power Blocs have a trade mandate that slaps huge tariffs on imports in and out of the Power Bloc. That means it's possible to reach even higher values than protectionism alone provides, allowing you totally starve the world from whatever you produce in larger quantity than the others.


On a related note:
As the global supply ultimately decides how expensive goods are on average (as global trade averages it out within a certain range), there can be a huge price spike and drain on other nations if a major supplier imposes tariffs (or embargoes a market). Trade wars are a really powerful way of messing with other nations or tricking them into building up economy that would never be profitable by first creating a shortage, just to then flood the market by opening trade again and causing them a lot of unemployment and radicals.

The AI is not smart enough to do that strategically to you but of course they embargo you, so if your market was dependent on resources from them it impacts your nation greatly. Combined with convoy raiding this can be a big factor in wars, when the war industries and market access suddenly cause shortages and everything falls apart.

[test]

I prefer protectionism, free trade just means all the ai and their dogs will munch on your production ...

[Hat8]

I prefer free trade. You should be trying to export as much as possible to make your industries profitable. This raises wages and that does more for SOL than any price reductions in goods.

Free trade raises the amount exported and lowers the admin cost. If you're exporting you want to be competitive and if you're importing you probably want the goods in large amounts.

Oddly enough, this applies to real life as well.