The Case for and against Protectionism

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The Case for and against Protectionism

Advantages

  • To protect infant industries, especially for developing countries in industrialisation
  • To protect geriatric industries, especially for developed countries losing their comparative advantage
  • To protect employment
  • To prevent dumping, where a good is exported below costs of production to gain market share
  • To correct a balance of payments deficit, discourages importing
  • To restrict imports from countries whose health and safety regulations and environmental regulations are less stringent
  • For strategic reasons, for example in times of war
  • To raise tax revenue, tariffs act as a kind of tax. This is especially valuable to developing economies
  • Ability to retaliate to the trade barriers of others

Disadvantages

  • Inefficient resource allocation: trade barriers distort comparative advantage and discourage specialisation
  • Higher prices and less choice for consumers
  • Less incentive for domestic producers to become more efficient
  • It is difficult to remove trade barriers as it could have an adverse effect on domestic producers

Evaluation

For developing economies, protectionist barriers can be very useful as they can speed up the development process, however for developed nations there are many adverse effects of such barriers which should be avoided.

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