Question

What are the rationales for protectionist policies?

Answer 1

During the 1980s, protectionist forces had risen worldwide. Such strains are exacerbated by numerous economic challenges, including the large and ongoing balance of trade deficits in the United States; the tough times many sectors have experienced; and the sluggish growth of several foreign countries. Protectionist foreign policy proponents argue that international foreign has made a significant contribution to these issues, and that protectionist trade policies would contribute to better outcomes. However, professional economists in the USA generally agree that trade restrictions such as tariffs and quotas significantly reduce the economic well-being of a nation.

Barriers to trade, such as those involving emerging technology, may be used to defend sunrise industries, also known as infant industries. This gives new companies the ability to create, expand and become competitive globally. Domestic industries security will allow them to build a comparative advantage. For example, when insulated from competition, domestic companies may grow, and benefit from economies of scale. As businesses expand, they can invest in physical and human resources, and build new skills and capabilities. There's less need for trade protection once these skills and capabilities are established, and barriers can eventually be eliminated.

At the other end of the spectrum are sunset industries, also known as declining industries, which will require some help to enable them to gradually decline, and to escape any of the negative effects of such a decline. For the UK, each generation has its own declining industries, such as shipbuilding in the 1950s, car manufacturing in the 1970s, and steel manufacturing in the 1990s.

Non-renewable commodities, like oil, are seen as a special case in which standard free-trade laws are frequently abandoned. For countries looking to rely on long-term oil exports, such as the oil-rich Middle Eastern economies, one strategy used to conserve energy is to restrict output in the short term by production quotas.

A somewhat different statement is couched in terms of fostering a domestic industry, the so-called case of the infant industries. Suppose an industry is developed in a given country, already founded in other countries. Because of the high costs and other advantages of international companies, the country may not be able to realize its competitive advantage in this field. The fledging firm's owners must initially be able to bear losses before the company grows its market and reduces its production costs to the level of its international rivals. Tariff immunity may be used to help this entrant shield the firm from any international competition.