4.1.4 protectionism

protectionism

when a country takes action to protect its own industries by restricting trade with other countries

arguments for protectionism

• infant industries

  • protect new and small businesses

• dumping

  • overproduction in developed countries may be released into the markets of developing nations, which undercuts domestic prices and domestic producers be forced to leave the market

• domestic employment

  • to protect jobs for workers

• externalities

  • some goods such as illegal drugs and weapons may be considered to have significant harmful effects on society and should be blocked from domestic markets

• balance of payments

  • placing restrictions on imports may help to reduce the balance of payments deficit on current account

protectionist measures

• tariffs

  • taxes placed on imported goods that are not applied to domestic goods

• import quotas

  • the physical limit on the volume of import entering a country

• government legislation

  • countries may employ manages such as complex legal forms, health and safety inspections and specific product specifications

• domestic subsidies

  • government payments to domestic businesses to help reduce production costs and improve competitiveness

• embargoes

  • a total ban on imported products from a specific country

comparative advantage

countries should specialise in producing goods where they have a lower opportunity cost, benefitting overall trade