arguments for and against trade protectionism

arguments for and against trade protectionism

1. protect infant industries

2. national security agreement

3. efforts of a developing country to diversify

4. anti dumping

infant industry definition

a new domestic industry that has not had time to establish itself and achieve efficiencies in production , and may therefore be unable to compete with more “mature” competitors

FOR — infant industry

Since mature foreign firms are able to operate with lower costs of production, they can sell at lower prices, making it difficult for new domestic firms to compete. As a result, infant firms may be unable to grow and could shut down in the long run. For example, India has historically used tariffs to protect its domestic manufacturing industries from cheaper imports. Therefore, implementing tariffs or import quotas allows infant firms to gain market share and increase production, helping them achieve economies of scale and lower average costs. Once the industry becomes internationally competitive, protectionism should be removed so that firms face foreign competition and continue improving. Overall, temporary protection can help an infant industry develop until it becomes competitive.

Against — infant industry

However, if protection is maintained after the industry has matured, firms may become over-reliant on government protection and face less pressure to innovate, reduce costs and improve efficiency. For example, India's high protection of domestic industries before the 1991 economic reforms was criticised for creating inefficient firms with limited international competitiveness. Therefore, protection should be temporary and gradually removed once firms become competitive.

national security argument — for

Certain industries are essential for national defence, such as weapons, aircraft and critical chemicals, so countries may want to protect them to maintain domestic production capacity. This is especially important during war or a national emergency, when international supply chains may be disrupted and imports may become unavailable. For example, Singapore maintains domestic defence manufacturing capabilities through companies such as ST Engineering.Therefore, protectionism can help preserve domestic firms and skilled workers in strategically important industries, reducing the country's dependence on foreign suppliers and ensuring a secure supply of essential goods during emergencies.

AGAINST — national security argument

However, the national security argument is mainly a political and military argument rather than an economic one. Protecting industries that are expensive to produce domestically may cause resources to be allocated inefficiently. For example, Singapore has limited land and natural resources, so producing every defence-related input domestically would require resources that could be used more efficiently elsewhere. This creates an opportunity cost, as resources such as labour and capital are diverted away from industries where Singapore has a comparative advantage. Therefore, protection should only be used where domestic production is genuinely important for national security.

economic diversification definition

change involving greater variety. increasing the variety of goods and services produced , it is the opposite of specialisation

efforts of a developing country to diversify FOR

Diversification means developing several different industries instead of relying heavily on one industry or export.This can reduce a developing country's vulnerability to fluctuations in the price or demand for one primary commodity. Therefore, governments may use tariffs, quotas or subsidies to protect and encourage emerging domestic industries that they want to develop. For example, Nigeria has used policies to encourage domestic manufacturing and reduce its reliance on oil exports. Therefore, protectionism can allow new industries to grow, create jobs and gradually diversify the country's sources of export revenue

efforts of a developing country to diversify AGAINST

However, protectionism may lead to retaliation from trading partners. When a country imposes tariffs or quotas, its trading partners may view this as unfair and respond with their own protectionist measures. This can reduce the country's exports, causing export revenue and economic growth to fall. For example, the US–China trade war saw both countries impose tariffs on each other's goods. Therefore, protectionism used to promote diversification may ultimately reduce international trade and economic growth if trading partners retaliate.

dumping definition

refers to the practice of selling a good in international markets at a price below the COP

anti dumping FOR

If a country suspects that a trading partner is practising dumping, it may impose anti-dumping tariffs to prevent foreign firms from selling goods at an artificially low price and harming domestic producers. For example, Australia imposed anti-dumping duties on Chinese wine imports after investigating claims that Chinese producers were selling wine below normal value. Therefore, anti-dumping measures can protect domestic firms from unfair competition and prevent them from being forced out of the market.

anti dumping AGAINST

However, there are difficulties involved in proving that dumping is actually occurring. A low import price does not necessarily mean that a firm is dumping; it could simply have lower production costs, greater economies of scale or greater efficiency than domestic firms. Governments must therefore investigate whether the foreign firm is genuinely selling below its normal value and whether this is causing significant injury to domestic producers. Therefore, anti-dumping measures may sometimes protect inefficient domestic firms rather than correcting genuinely unfair trade.