Reasons for Protectionism
As a matter
of fact, no countries in the world that truly practice free trade although the
arguments put up are very persuasive. All governments to some extent do
restrict the movement of goods & services in & out of borders
what are some of the reasons given for trade restrictions?
(1) Protecting the infant industry. This
is the most traditional excuse & is often used by developing countries.
They claim that they have many sunrise industries with great potential to be transformed
into international business. However, at the meantime they yet to realize the
cost advantages from economies of scale. They need time to enlarge their market
share, trained their labors & learn to produce via the most cost-efficient
method. As such they need ‘temporary’ protection from low-cost foreign
producers until they are able to compete on equal footing. So tariffs are put
up , making the once-cheap foreign goods to be artificially expensive. Local
producers can now raise the price of their goods & thus enable them to
enjoy some profits
(2) Protecting jobs. At any given time in an economy, there
will also be some industries which are declining (sunset industries). Normally
firms in this industry have reached maturity stage but yet inefficient. Let’s
consider US. In 2002, President Bush imposed the controversial 8-30% steel
tariffs after mounting pressure from industry leaders & increasing number
of steel mills that went under administration. If there was no further action
taken, probably structural unemployment would have increased even more.
(3) National security. Some governments admit that although they
may not have comparative advantage in the production of a good, protectionist
measures must be maintained to ensure their survival. Agriculture & steel
industries can become strategically important especially in time of crisis or
war where they are easily cut off. In Japan, very high restrictive quotas &
tariffs are placed on rice. The farmers need to be protected so that they can
grow enough food to feed the Japanese in crisis. The same reason for US which wants
protection for its steel industry so that they can produce sufficient tanks
& munitions during an international conflict
(4) Protect consumers from
unsafe products. Very often
consumers are unaware of the quality & safety of the products they consume.
Therefore we have the government stepping in to act as an agent guaranteeing
consumers product safety. Cars must pass safety inspection, rules are made
regarding types of chemicals that can be used onto food etc. Having said so,
different countries have different standards that might not conform to other
beliefs about product safety. For instance, the famous EU ban on US beef &
dairy products claiming that the cattle have been injected with hormones to
increase its size & milk production. The US government defends itself by
saying that this does not pose a risk to consumers & EU medical authorities
have no hard evidence for this
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