The Economics Of Protectionism

Protectionism is the theory to protect or shield the country's domestic industries by taxing foreign imports with high tariffs. or imports duties. The primary reason why governments do this is to prevent matured and well developed foreign industries from taking over the market and crushing the domestic industries during their time of infancy. On the other hand, there are countries who use protectionism as an excuse to prohibit free trade and manipulate it to their own advantage.

The following are arguments for and against the practice of protectionism:
Arguments for Protectionism:

• It protects infant industries from large firms and industries abroad.
• It protects jobs. The most efficient overseas producers could force firms to close down.
• It prevents dumping – this occurs when one country floods the market in another with cheap subsidized products to force domestic producers out of business.
• Prevents overspecialization by protecting a range of different industries. A country that specializes in the production of a special number of products will suffer a significant fall in income if there is a fall in global demand for one or more of these products.

Arguments against Protectionism:

• Other countries will retaliate by increasing their own trade barriers. Prices will rise and fewer goods and services will be traded.
• This will reduce unemployment and the rate of economic growth in many countries. Any loss of job from global competition will only be temporary as people are made unemployed, wages will fall and other firms will increase their demand for labour.
• Trade barriers protect inefficient domestic firms. Consumers in the country will suffer higher prices and/or lower quality.
• Subsidies paid to less efficient farmers and other firms in developed countries have forced down the global prices of many natural and other products. Producers in the developing countries will suffer a fall in income.

Non-economic arguments in favour of protectionism:
• To ensure that a country is self sufficient in the production of crucial goods in case of war (strategic reason)
• The weapons and aerospace industry as well as food sectors are often classified as being of strategic importance. The validity of this argument is doubtful at least for countries belonging to wide strategic and/or political alliances.
• To restrict import of illegal drugs and other harmful substances. Research has raised doubts as to the success of such policies as drug use is widespread in many countries.
• To put pressure on and weaken politically countries (embargo).
• To preserve a way of life or cultural identity as a part of broader social strategy.
• To ensure that certain safety and health standards are met. However such standards may be a pretense through which domestic producers are protected.

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