Please enable JavaScript.
Coggle requires JavaScript to display documents.
Protectionism versus trade (Protectionism (To protect sunrise or infant…
Protectionism versus trade
Protectionism
To protect domestic employment
To protect sunrise or infant industries
Decreases foreign competition
The strategy is to block imports with tariffs and other trade barriers
It may also include subsidies to the infant industry. In theory, these firms will eventually grow strong enough to compete without such assistance.
Infant industries are those that are newly developed and have not had an opportunity to develop the economies of scale and low costs that are achieved by selling to a large market.
Believe they have industries that are future champions
Industries are as yet underdeveloped, and have not grown large enough to achieve lowered costs through economies of scale
These industries should therefore be sheltered until they can face on more equal terms the powerful multinational corporations and highly developed industries of rich countries
Allocative inefficiency (country may not have the comparative advantage)
Misallocation of resources
Most sunrise industries never grow up fully, and often require state support long after their infancy or even adolescence has passed
These dependent firms will continue to draw government subsidies and will cry out for protectionism long into the future.
To prevent the dumping of foreign goods onto the domestic market
Dumping occurs when one country exports goods at a price below their average costs
This implies that exporters are losing money on these goods and are therefore preying on domestic producers hoping to steal away domestic consumers country at a price below with unsustainably low prices
Is everyone cheating?
Blanket tariff?
To diversify the production base of a developing country
Many poor countries export a limited range of goods, and typically these goods are basic commodities
When the market price drops dramatically, this can cause significant loss of income for the country that relies on it
Poor countries would benefit from selectively protecting some domestic markets in an attempt to diversify the economic base
With such protection, perhaps for sunrise industries, the country would be less vulnerable to wide swings in global market prices for their goods
Ignores the benefits gained by comparative advantage by demonstrating the risks of over-specialization
It also values a form of economic security rather than income gains
At the same time, it is understandable that any country would not want its entire economic future to be dependent on one industry
To counteract relative domestic tax differences
To raise government revenue
To enforce product standards
To protect against unfairly low labour costs
To overcome a balance of payments deficit
To improve the terms of trade
To protect strategic industries
Trade