Subsidies are just a transfer of funds from taxpayers to producers and as taxpayers are also consumers they end up paying more twice – first through their taxes and then through higher prices.
The subsidies also blind producers to market signals so they produce more than the market requires.
The other weapon in the protectionists armour is tariffs. They are also a tax which costs both producers and consumers because goods subject to tariffs cost more.
So who benefits from protection?
In the short term inefficient producers and politicians. In the long term no-one because protection stunts economic growth.
The global recession could provide an opportunity to reduce protectionist policies because it costs too much, but the signs aren’t promising as the Inquiring Mind notes in a post on the rising tide of protectionism.
Anti-Dismal illustrates the problem of protection with this: