Is protectionism ever justified
The argument goes that if each country focused and specialised on what they do best or cheapest, they would produce better quality or cheaper products. It was between the European Union and the United States.
Arguments for protectionism
But it is very destructive in the long term. Employment levels, salaries, spending and confidence by consumers and businesses will go up further, triggering even more inward investment. It was designed to protect farmers from agricultural imports from Europe. In situations where capital is mobile, and without any barriers to the flow of people and investment, all production could well move to one part of the world — sound familiar? As early as , the founder of free trade theory in economics, David Ricardo , recognised that the outcome of free trade may well be to strengthen states with the production advantage and lead to job losses for others. For example, consider World War II. Antiprotectionism Since Smoot-Hawley, most countries have been antiprotectionist. Eventually, the domestic product will decline in quality and be more expensive than what foreign competitors produce.
Combining these ideas, it is clear that there is substantial national security value to trade protectionism. Share on Facebook Share on Twitter Share on Linkedin Share on Google Share by email Building Some Arguments for Protectionism Fledging industry argument: Certain industries possess a possible comparative advantage but have not yet exploited enough economies of scale.
One of the pitfalls of tariffs is the likelihood of retaliation, where the foreign government returns with similar tariffs. Goods are dumped when they are sold for export at less than their normal value.
This results in a substantial national security threat in the form of conflicting or offensive trade strategies between countries. This makes the products cheaper even when shipped overseas.
To prevent dumping - which is where economies sell goods in overseas markets at a price below the cost of production.
Reasons for protectionism
However, some argue self-sufficiency via protectionism in war is not necessary, as friendly nations will still provide trade and economic support. These agreements demonstrate some of the validity behind trade protectionism and isolationism as discussed in other atoms in this chapter. Dumping is the process of selling goods far below market value to drive out competition, often in pursuit of creating a monopoly. But the immediate losers will be the global consumers. Indeed, economics is often used directly as a weapon of war and conflict via trade sanctions. To correct balance of payments disequilibrium - as demand for imports is dampened and exports promoted. The success of Japanese, South Korean and Chinese industrialisation is partly due to the fact that these countries shielded their industries in their infant stages, allowing them time to grow and strengthen before they had to compete with the industries of the West. However, is it also the case that trade reduces conflict? Economies of Scale: The basic premise behind economies of scale is that higher production quantity reduces cost per unit, ultimately allowing for the derivation of economic advantage in the market. Goods are dumped when they are sold for export at less than their normal value. Protectionism is also a good idea when dealing with infant industries. Anti-dumping:Anti-dumping legislation actively offsets the ability of low cost or highly subsidized producers in foreign countries to undercut prices in a domestic system.
But the Trump administration has not pursued it. Intellectual Property Another critical risk in the global market is intellectual property IP protection.
Although unfavorable to uncompetitive domestic industries, these boost local industries that can produce at better economies of scale than those of other nations. Subsidies work even better than tariffs. Protectionist policies are a highly charged topic in economic debates, as economies work to attain the optimal balance of free trade and trade protectionism to capture the most value.
based on 35 review