During the last two decades, there has been a gradual but fundamental change in the nature of world protectionism. While various rounds of international trade negotiations have succeeded in reducing tariffs to very low levels, national governments have resorted to a range of increasingly intricate policies to protect their domestic industries from foreign competition. Direct quantitative restrictions on international trade have become particularly widespread and have made it difficult for newly industrializing countries to access new export markets. In addition, it has become clear that these non-tariff trade barriers often have very different effects from tariffs and require careful analysis in their own right. This has spawned a voluminous, if scattered, literature on the properties of policies as wide ranging as import quotas, voluntary export restraints, variable import levies and export subsidies, content protection schemes and government procurement schemes.

Economists have also become increasingly aware of the importance of imperfect competition and economies of scale in many of the more heavily protected manufacturing industries (e.g. steel and automobiles). Canadian economists, in particular, had long felt that one of the most significant costs of protection was its effect in inhibiting firm scale, by promoting excessive entry of domestic firms. Proponents of protection had often spoken vaguely of the need to increase the market share of domestic firms, a proposal which only has meaning when applied to non-competitive industries. However, most of these ideas were not to find formal expression until the late 1970s and early 1980s when a series of important papers by trade theorists subjected the full range of non-competitive market structures to formal analysis.