TERM 2 - UNIT 5.3 Protectionism

Question 1

What is PROTECTIONISM?

Answer 1

Applying trade policy to discourage importing/exporting of certain goods/services

{it protects local industries from unfair competition. If there are no barriers, free trade exists. Most economists believe protectionism is harmful to the economy}

Question 2

What are the arguments IN FAVOUR OF protectionism?

Answer 2

*Maintain domestic/local employment:
(job creation)
*protect labour-intensive industries
*protect consumers
(discourage import of low-quality goods
which can be unsafe)
*develop strategic industries
(it is important for a country to be self-
sufficient)
*diversification of industries
(sometimes countries rely too heavily on
industries such as mining/agriculture.
Import restrictions will ensure diverse
industries to develop)
*new industry development
(cheaper imported goods can destroy new
industries, therefore restrictions are
necessary to protect new industries)
*prevention of dumping
(cheaper goods available from foreign
producers, make it difficult for local
producers to gain market share)
*stability of exchange rates and balance of
payments
(consumer’s disposable income is spent on
locally produced goods, there is no
outflow of money from the economy)
*natural resources
(prevent depletion of the country’s natural
resources / damage to the environment)

Question 3

What are the arguments AGAINST protectionism?

Answer 3

• retaliation by trade partners
  (trading partners might get frustrated by a
  country’s protective measures. This could
  even lead to trade wars)
  -disadvantaging consumers
  (consumers paying more for imported
  goods due to tariffs imposed on such
  goods; consumers paying more when
  producers increase prices due to less
  competition)
  -difficulty in identifying industries for
  protection
  (deciding which industries must enjoy
  protection could be difficult)
  -deciding when infants should grow up
  (duration of protection is a decision that
  needs to be made)
  -reinventing the wheel
  (does not make sense to produce readily
  available goods and people spent lots of
  money with patents and trademarks on
  items such as microprocessors for
  computers)