Arguments for Protectionism
Economics: IB Diploma, topic 3.1.6
Arguments for Protectionism
Different industries and workers within the same country will be affected differently by protectionism.
Protect domestic jobs
- Protectionism can protect jobs, particularly those in jobs with low wages.
- Protectionism may help domestic companies to make higher profits, which could be passed on to workers with positive multiplier effects.
Protect infant industries
- Infant industries are new industries that are developing.
- Blocking imports for a limited time has historically helped countries' own industries to develop. It has helped them in the long-run by allowing them to first achieve economies of scale and become competitive.
Anti-dumping laws
- Anti-dumping laws block imports that are sold below the cost of production by imposing tariffs that increase the price of these imports to reflect their cost of production.
- Dumping can be used to drive firms out the market.
Environmental concerns
- The consequences of globalisation for the environment are not good.
- Economic activity more generally can pose environmental dangers.
- Large multinational corporations often shift their production to lower income countries to take advantage of lower environmental protection standards.
Arguments for Protectionism (Cont.)
Different industries and workers within the same country will be affected differently by protectionism.
Reduced dependence on imports
- Protectionism could help to rebalance an economy from imports to domestic consumption – which will increase domestic employment.
Reduces trade deficit
- Because protectionism will involve lowering imports (M), it will lower a trade deficit, which boosts aggregate demand (AD).
- This is assuming there is no retaliation.
Raises tax revenue
- Protectionism raises government revenue from tariffs. This is especially relevant for LDCs who may have a weak tax base otherwise.
Test yourself on Arguments for Protectionism
Which of the following is an argument in favour of protectionism?
Which of the following are arguments in favour of protectionism?
What can protectionist policies reduce by limiting imports?