/ Unit 4.3- Arguments For and Against Trade Protection
Arguments For Trade Protection:
1.Protecting Domestic Jobs
Explanation: Trade protection shields industries from foreign competition, helping to preserve jobs in sectors like manufacturing.
Example: The U.S. imposed tariffs on imported steel in 2018 to protect domestic steelworkers from foreign competition, particularly from China.
2. National Security
Explanation: Certain industries, such as defense or energy, are critical for national security. Governments may protect these industries to avoid over-reliance on foreign producers.
Example: The U.S. protects its domestic semiconductor industry, fearing that reliance on foreign technology could pose a security threat.
3. Infant Industry Argument
Explanation: New industries may need temporary protection to grow and become competitive on the global stage.
Example: South Korea protected its automobile industry in the 1960s, which later grew to be globally competitive, as seen with Hyundai and Kia.
4. Protection of Strategic Industries
Explanation: Governments may protect industries that are essential to the economy, such as agriculture, energy, or technology.
Example: The European Union heavily subsidizes its agricultural sector through the Common Agricultural Policy (CAP), arguing that food security is essential.
5. Reducing Dependency on Foreign Imports
Explanation: Protectionist policies can reduce a country’s dependency on foreign goods and services, promoting self-sufficiency.
Example: India implemented import substitution policies in the 1960s to reduce its reliance on foreign goods and promote domestic industries.
Arguments Against Trade Protection:
1. Higher Prices for Consumers
Explanation: Tariffs and quotas make imported goods more expensive, leading to higher prices for consumers.
Example: When the U.S. imposed tariffs on Chinese goods in 2019, the price of consumer electronics, such as smartphones, increased for American consumers.
2. Inefficiency and Resource Misallocation
Explanation: Protectionism encourages inefficient domestic industries to continue operating, rather than allowing resources to flow to more efficient sectors.
Example: Japan’s protection of its rice farmers results in high prices for rice, even though it could be imported more cheaply.
3. Retaliation and Trade Wars
Explanation: Countries affected by tariffs often retaliate, leading to escalating trade barriers and decreased global trade.
Example: In response to U.S. tariffs on steel in 2018, the EU imposed tariffs on American products like bourbon and motorcycles, escalating a trade dispute.
4. Reduced Consumer Choice
Explanation: Trade protection can limit the variety of goods available to consumers, as fewer foreign products are imported.
Example: Brazil’s high import tariffs on electronics have limited consumer choice, making certain foreign brands more expensive or unavailable.
5. Reduced Innovation and Competitiveness
Explanation: Without competition from foreign companies, domestic industries may have less incentive to innovate or improve efficiency.
Example: India’s automotive industry, prior to liberalization in the 1990s, was heavily protected, resulting in outdated car models and poor quality compared to international standards.
