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Advantages and Disadvantage of Protectionism

The document discusses the advantages and disadvantages of protectionism. It outlines several advantages such as protecting domestic industries from foreign competition, allowing new domestic firms to develop without pressure from foreign competitors, and preventing dumping of foreign goods. However, it also discusses several disadvantages, including higher prices paid by consumers due to lack of competition, businesses becoming complacent without need to compete, limiting consumer choice of goods, and potential trade retaliation from other nations.

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Mai Anh Nguyễn
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1K views3 pages

Advantages and Disadvantage of Protectionism

The document discusses the advantages and disadvantages of protectionism. It outlines several advantages such as protecting domestic industries from foreign competition, allowing new domestic firms to develop without pressure from foreign competitors, and preventing dumping of foreign goods. However, it also discusses several disadvantages, including higher prices paid by consumers due to lack of competition, businesses becoming complacent without need to compete, limiting consumer choice of goods, and potential trade retaliation from other nations.

Uploaded by

Mai Anh Nguyễn
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Advantages of protectionism

Protectionism marks an economic theory that emphasizes the minimization of free trade
between nations. There are currently a lot of nations that practice economic
protectionism; such countries believe that the manufacturing of goods should take place
domestically, rather than in a global setting. Generally there are two main types of
government control on international trade

+Tariff

+Non-tariff

Previously, the main dispute between supporters and opponents of protectionism was
focused on the discussion of arguments again and for using tariff as an economic policy
instrument. Non-tariff barriers became usual in the last years and many of them are
used by countries as an escape passage in free trade agreements, since WTO
agreements have much weaker restraints on non-tariff protectionism than on tariff. The
supporters of protectionism build their arguments on the following:

1) An advantage of protectionism is that it keeps the domestic economy rolling. Since


there is a decrease in imports, domestic firms have less competition, and so are able to
continue. The domestic economy will also be strengthened because unemployment will
be down due to the domestic firms and they will be able to produce and sell more
goods with a lot less difficulty, giving firms less reason to decrease its costs by
decreasing its workforce. Those with jobs will continue to consume while allowing the
economy to flow.

2) Protectionism makes domestic firms less competitive in the export market, as import
barriers raise domestic prices through higher costs for mediocre inputs this means that
export products also become more expensive and decrease in market share against the
international competition.

4) Protectionism permits the new and upcoming firms to work and develop at an
acceptable rate, because they will not be pressured by foreign, more experienced firms.
The new firms can grow until they themselves are big enough to compete in
international markets, encouraging positive features for the domestic economy in the
future.

5) Protectionism can also prevent dumping, this is where foreign and bigger economies
enter an economy and sell their goods at a price lower than the costs of production.
Therefore, the consumers of that specific economy are spending more than the
consumers in overseas areas.

3) An exception in which protectionism could improve a nation’s economic well-being is


when a country has monopoly power over a good. Economists [1] have argued that a
country that produces a large percentage of the world’s output of a good can use an ”
optimum’ tariff to take advantage of its latent monopoly power, and thus gain more
from trade. This is the same as stating that a monopolist will maximize profits by raising
prices and reducing outputs.

As stated before, many countries practice economic protectionism and it may hold
several advantages over the separate notion of free trade.

Disadvantages of protectionism
Trade protectionism has more than a few disadvantages, the most noteworthy of which
are the pressures it places on the very core principles of free trade. Further
disadvantages are the protections it offers to firms that contest on a stage of price over
quality, the incorrect sense of security that it builds and the denial of easy access to
certain products for consumers. At the core of protectionism are tariffs, duties, quotas
and any other measures designed to restrict the import of foreign goods in interest of
protecting domestic companies from foreign take overs. More disadvantages are as
follows:

1) Consumers pay more with protectionism. Without a system of competitive pricing,


domestic companies are free to raise their prices without raising the quality of their
goods. When a business has no competition then the consumer is left without options.

2) Businesses suffer from protectionism too. Government support often builds corporate
contentment, which could lead to a business to believe that it has a pleasant safety net
set up behind it in the event of strong foreign competition as these businesses might
not have the resources necessary to survive on their own.

3) Trade protectionism limits consumer access to foreign goods and non-domestic


companies that offer unique products and services are also subject to the restrictions.

4) Foreign businesses and domestic consumers face the greatest disadvantages of trade
protectionism. Businesses face imbalanced restrictions while their domestic competitors
are offered financial advantages, and the consumer ends up paying higher prices for a
limited variety of products that are not always worth their costs.
5) Protectionism can cause a retaliation reaction from other nations, ruining vital
relationships between nations. a clear example of this would be the relationship
between USA and China, when the US put boundaries on the Chinese tires , China
retaliated by putting up barriers against different U.S. goods such as their chicken. This
kind of hostility between nations decreases the specialization between two nations,
eventually damaging the economy.

Additionally to all of this, some governments provide subsidies and loans to businesses
that are not able to compete against their foreign competitors. These actions restrain
the free market by giving benefits to domestic companies while creating consequences
upon foreign businesses. Some argue that trade protectionism is a step towards anti-
globalization because of these reasons.

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