Reasons for Protectionism Flashcards
(11 cards)
What is protectionism?
Protectionism involves government policies that restrict imports to protect domestic industries, such as:
Tariffs (tax on imports)
Quotas (limits on import quantity)
Embargoes (bans)
Subsidies to domestic firms
Non-tariff barriers (e.g. health/safety standards)
What is the infant industry argument?
New or small industries may need temporary protection to develop:
Helps them build economies of scale
Once competitive, protection is removed
🟨 Criticism: Can lead to long-term inefficiency if protection is never removed.
What is dumping and how does protectionism address it?
Dumping is when foreign firms sell goods below cost (COP) in another country to flood the market:
Often due to excess supply or heavy subsidies
Can destroy domestic industries
🟨 Protection (like anti-dumping tariffs) may be justified, but dumping is hard to prove.
How does protectionism protect domestic employment?
Cheap imports can cause:
Job losses in uncompetitive domestic sectors
Structural unemployment
Protectionist policies aim to preserve jobs, especially in vulnerable industries.
Why protect against low-cost foreign labour?
Countries with very cheap labour may undercut domestic producers:
Leads to offshoring or firm closures
Protection helps maintain fair competition and local wage standards
What are non-tariff barriers and how do they protect consumers?
These include health, safety, and environmental standards:
Ensure imports meet domestic safety laws
Can be used to legitimately or strategically restrict certain imports
Why protect domestic industries from low-cost labour abroad?
Countries like China and India may have much lower labour costs, making their exports very cheap. Protectionist measures can shield domestic industries that cannot compete with these low wages.
How does protectionism protect product standards?
Governments impose strict environmental, safety, and quality standards to prevent the import of:
Poor quality goods
Contaminated or dangerous products
This protects consumers and domestic industries.
How do tariffs raise government revenue?
Import taxes (tariffs) generate income for governments, especially in developing countries. This revenue can fund important public services like:
Healthcare
Education
Infrastructure
How can protectionism help improve a current account deficit?
By restricting imports, a country reduces spending abroad, helping to narrow a current account deficit (where imports exceed exports).
🟨 However, this may provoke retaliation and trade wars.
Why protect against the risk of over-specialisation?
Relying heavily on one or two industries is risky. Protection can help diversify the economy by allowing other sectors to develop, reducing vulnerability to shocks in major industries.
