Now that you understand there are many good reasons for the world to have free trade you need to know that there are
also arguments for restricting free trade, referred to as ”protectionism” because it is an attempt to protect domestic
industries from foreign (often cheaper - for whatever reason such as enjoying a better technology, being more efficient,
having low wage workers or exchange rate differences) competition.
What ways countries try to restrict free trade will come later.
Arguments for protectionism
the protection of domestic jobs
national security
protection of infant industries
the maintenance of health, safety and environmental standards
anti-dumping and unfair competition
a means of overcoming a balance of payments deficit and
a source of government revenue.
Governments use the following arguments to justify protectionism:
To safeguard domestic employment - protectionist policies reduce the level of imports and increase
national production, (ie, national output) and therefore domestic employment.
To protect strategic industries - a particular product or industry might be of strategic importance to a
country, e.g. agriculture or coal or defense, and protectionism may be justified on the grounds that it is keeping
alive an industry which plays a vital part in the security of the economy.
To safeguard infant industries - The new and competitive industries (followers) need some protection from
the power of already established competitors (leaders) to be able to grow and achieve economies of scale. So
protection for infant industries could be temporarily justified.
To prevent dumping - which is where exporting economies sell goods in overseas markets at a price below
their domestic price (or even below the price cost of production!). Consumers from the importing country pay
more than consumers from the exporting country. Such low prices are part of a policy to destroy rivals in the
importing country (and to increase prices later on!).
To correct balance of payments disequilibrium - as imports are discouraged, and exports encouraged, the
balance of payments improves.
Source of government revenue - where protectionism takes the form of a tariff, this will also raise revenue
for the government, like any other tax.
To prevent labour exploitation in developing economies - preventing import of goods produced by
exploiting cheap labour in developing countries will prevent this labour exploitation (competitiveness in the
exporting country comes from not addressing basic international labour rights set by the International Labour
Organization ILO; www.ilo.org). However, for some of the poorest economies in the world it might also reduce
export income and job opportunities.
To enable a developing country to diversify - Many developing countries are heavily dependent on exports
of primary commodities. This can leave them very exposed to changes in international commodity prices. If
they want to diversify and develop new export revenue streams, they may need to protect these new industries
from full exposure to international competition for a while. (This is an argument for the LDC to protect
themselves from international competition)
