Please enable JavaScript.
Coggle requires JavaScript to display documents.
:fountain_pen:Free Trade & Protectionism :fountain_pen: (Arguments for…
:fountain_pen:
Free Trade & Protectionism
:fountain_pen:
What is free trade?
take place between countries
when there are no barriers to trade implemented by governments/international organizations
G&s are allowed to move freely between countries
Arguments for Protectionism
Protecting domestic employment
declining industries = sunset industries
cannot compete with foreign competition
will lead to high levels of structural unemployment
not strong argument
it's likely that the industry will continue to decline & that protectionism will simply prolong the process
it's better to let the resources employed in the industry move into other, expanding areas of the economy
Protecting the economy from low-cost labour
countries should be protected from imports that are produced in countries the cost of labour is very low
Greater job insecurity among manufacturing workers in the more developed countries as workers fear that they will lose their jobs to workers in emerging countries
Protecting an infant (sunrise) industry
the domestic industry will not be competitive against foreign imports until it can gain the advantages of economies of scale
the industry needs to be protected against imports until it achieves a size of where it is able to compete on an equal footing
not strong argument
there is no idea that a new industry will set up in a relatively small way
a new industry would set up at the most efficient size.
To avoid the risk of over-specialization
government wants to limit over-specialization in the country
because it means that the country could become over-dependent on the
export sales of one or two products
so, any changes related to these products may seriously affects the country's economy
simply points out the problems faced if countries specialize to a great extend
Strategic Reasons
certain countries need to be protected in case they are needed at times of wars
Ex: agriculture, steel, etc (these companies argue that they will be needed in times of war)
not strong argument
overstated
it's unlikely that a country will go to war or, if they do, that they will be completely out of all supplies
To prevent dumping
dumping=
selling by a country of large quantities of a commodity, at a price lower than its production cost, in another country
as it ruins the domestic producers in the developing country
countries may impose anti-dumping measures to reduce the damage
however, proves are needed and it's more likely that there will be a need for talks between governments, rather than any form of protectionism
there is always a danger that protectionism will invite retaliatory actions by foreign governments and this reduces the benefits that can be gained by all consumers and producers in all countries
To raise government revenue
in many developing countries, it's difficult to collect taxes and so government impose tariffs to raise revenue or import duties, as it actually tax place on consumers in the country who are buying the imports
To correct a balance of payment deficits
to attempt to reduce import expenditure and thus improve a current account deficit
only work in a short run
To protect product standards
to ensure that the imports match the standards of domestic products
Ex: no hormones in beef
must be accompanied with scientific evidence, and as long as the country imposing the ban doesn't discriminate between countries where similar products are traded
sometimes, the standards are too high, and this affect developing countries' exports
Wto recognized this issue
established a STDF programme
to help developing countries improve their expertise and their capacity to analyse and implement international standards on food safety and animal and plant health
Arguments against protectionism
May raise prices to consumers and producers of the imports that they buy
Lead to less choice for consumers
Competition would diminish if foreign firms are kept out of a country
So, domestic firms may become inefficient without the incentive to minimize costs.
Innovation may also be reduced
Distorts comparative advantage, leading to inefficient of the world's resources
Specialization is reduced
would reduce the potential of the world's output
Hinder economic growth