Final answer:
Import substitution is an economic policy where a country aims to reduce reliance on imports by manufacturing goods domestically, often employing high tariffs to support local industries. While it's been somewhat successful, it's also led to challenges and trade disputes.
Step-by-step explanation:
Import substitution is the process by which domestic producers provide goods or services that were formerly bought from foreign producers. This economic strategy aims to reduce dependence on imports by encouraging local production of goods and involves establishing high protective tariffs to shield these emerging industries.
While import substitution has led to some successes in spurring local manufacturing, such as in textiles and electronics, it has also faced challenges due to small domestic markets and the difficulty of developing capital-intensive industries, like automobile manufacturing, under the constraints of trade protectionism. Despite the widespread abandonment of overt import substitution policies by the 1990s, many governments continued to implement a variety of protectionist practices to protect domestic industries from foreign competition.
Nations sometimes engage in protectionist measures for reasons beyond economic strategy, such as national security concerns or cultural significance, like Japan's production of rice. These measures can lead to trade disputes and retaliations, exemplified by import tariffs and quotas that nations impose to protect their industries.