Retaining some self-sufficiency is seen as a sensible economic strategy given the risks of global downturns, and an over-reliance on international trade.
Workers are not only inexperienced but also less efficient. A country, that is dependent on imports of food and weapons, runs the risk of its supplies being cut off due to wars or natural disasters. Secondly, protection saps the self- sufficiency outlook of the protected industries. A number of arguments are presented for protecting domestic industries.
So employment, income and the trade position may not improve. Protect strategic industries Barriers may also be erected to protect strategic industries, such as energy, water, steel, armaments, and food. Perhaps the oldest as well as the cogent argument for protection is the infant industry argument.
It is too immature to reap economies of scale at its infancy. Protection of domestic industries: There is a high risk, however, of retaliation. As workers retire and leave of their own accord, the protection can be removed. Fourthly, international tension often escalates, particularly when tariff war begins.
This unfair practice can be prevented by imposing tariff. Thirdly, often weak declining industries having no future potential stay on the economy under the protective umbrella. It is not easy to find a clear-cut and worldwide definition of what constitutes an act contrary to honest practices.
For example, domestic firms may expand when protected from competition and benefit from economies of scale. A common motive behind dumping is to drive domestic firms out of the market, gain a large market share and then raise prices. For the UK, each generation throws up its own declining industries, such as ship building in the s, car production in the s, and steel production in the s.
But cut in imports following import-substituting industrialization strategy may ultimately cause exports to decline. There are some industries which may be inefficient by birth or high cost due to many reasons and must be protected.
Deter unfair competition Barriers may be erected to deter unfair competition, such as dumping by foreign firms at prices below cost. This means that specialization in production may be lost if a country imposes tariff. Since then various arguments have been made in favour of protection.
Once the retaliatory attitude i. In other words, infant industries become too much dependent on tariffs and other countries. In other words, dumping is a kind of subsidy given to export goods. It is generally agreed that trade restrictions can be imposed to prevent dumping.
This makes it very difficult for domestic firms to compete. Protection of industries from low wage competition vi. Thus, these large firms reap pure profits over the long run during which new firms may not dare enough to compete with these established large firms. As competitors are out to win, they may sometimes be tempted to use malicious means to gain an unfair advantage such as making a direct attack against a competitor or misleading the public to the detriment of a competitor.
By setting up newer and variety of industries through protective means, a country minimizes the risk in production. For example, an omission to act can also be considered an act of unfair competition.
It is argued that tariffs and other import restrictions create a strategic advantage in producing some new products having potential for generating some net profit. Once protection is granted, it becomes difficult to withdraw it even after attaining maturity.Barriers may be erected to deter unfair competition, such as dumping by foreign firms at prices below cost.
Save jobs Protecting an industry may, in the short run, protect jobs, though in the long run it is unlikely that jobs can be protected indefinitely.
Another common argument against free trade is that it is risky to depend on potentially hostile countries for vital goods and services. Under this argument, certain industries should be protected in the interests of national security.
1- protection of manufacturing from foreign competition does no good unless the protection helps make the industry efficient.
2- the infant industry argument relies on the assumption that firms are unable to make efficient long-term investments by borrowing money from the domestic or international capital market. majority are similar to those used in the United States.
Protecting industries deemed important for national security, and retaliating against unfair foreign competition are economic arguments for intervention.
FALSE Political arguments for government intervention cover a range of issues, including preserving jobs, protecting industries 79%(14). Start studying Chapter 6. Learn vocabulary, terms, and more with flashcards, games, and other study tools.
Search. -The goal is to protect domestic producers from "unfair" foreign competition The infant industry argument Strategic trade policy. a new domestic industry needs protection because it is not yet ready to compete with established foreign competitors.
National Security Argument defense-related industries must be protected with embargoes tariffs, and quotas to ensure national security.Download