PROTECTIONISM

PROTECTIONISM

1. Arguments for protectionism

   • Protecting domestic employment: If industries are relatively large, this will lead to high levels of structural unemployment, and governments often attempt to protect the industries in order to avoid the unemployment
     • Protecting the economy from low-cost labour: the main reason for declinig domestic industries is the low cost of labour in exporting countries and that the economy should be protected from imports yhay are produced in countries where the cost of labour is very low
       • Protecting an infant industry: the industry needs to be protected against imports unit it achieves a size whereit is able to complete on an equal footing
         • To avoid the risks of over-specialization: governments may want to limir over-specialization, if it means that the country could become over-dependent on the export sales of one or two products
           • Strategic reasons: it argued that certain industries need to be protected in case they are needed at times of war
             • To prevent dumping: the selling by a country of large quantities of a commodity, at a price lower than its production cost, in anothercountry
               • To protect product standards: a country might wish to impose safety, heald, or enviromental standards on goods being imported into its domestic market in order to ensure that imports match the standards of domestic products
                 • To rice government revenue: mean of rising government revenue, affects the import duties are actually a tax on the consumers in the country who are buying the imports
                   • To correct a balance of payments deficit: governments sometimes impose protectionist measures to attempt to reduce import expenditure and thus improve a current account dificit whereby the country is spending more its imports of goods and services than it is earing for its exports of goods and services

2. Arguments against protectionism

   • Protectionism may raise price prices to consumers and producers of the imports that they buy
     • Protectionism would lead to less choise for costumers
       • Competition would diminish if foreign firms are kept out of a country, and so domestic firms may become inefficient without the incentive to minimize costs
         • Protectionism distorts comparative advantage, leading to the inefficient use of the world´s resources
           • For the reasons listed above, protectionism may hinder economic growth

3. Tariffs

   • A tariffs is a tax is cganged on imported goods. Any tax placed upon a good shifts the supply curve upwards by the amount of the tax. Tariffs are most common type of anti-dumping measure.

4. Subsidies

   • A subsidy is an amount of money paid by the government to a firm, per unit of output. In this case, the government is giving a subsity to domestic producers to make them curve downwars by the amout of the subsidy

5. Quotas

   • A quota is a physical limit on the numbers or value of goods that can be inported into a country.