Question

What are the Arguments for Protection? Define each of the arguments for protection. Do you believe that the arguments for protection are necessary or unnecessary? Are some necessary? Explain your answers using current events.

Answer 1

Arguments for trade protection can be defined asrhe valid points that justify that protectionism is necessary in certain circumstances and should be strictly followed. Some of them are necessary and some definitely are not.

Following are some necessary and Qualified Arguments for Trade Protectionism.

Qualified arguments for Trade Protection

Infant industry argument

This argument rests on the principle of economies of scale, which means that as a firm grows, its costs of production will decrease. Therefore, to protect new firms who have not achieved economies of scale, a new firm may need protection from imports until it grows to a size where protection is no longer needed.

However, it may be difficult to know which industries ahve the potential to become low cost producers, presenting difficulties in knowing which industry to protect. Once the selection is made, the firm may not have an incentive to become efficient, and lastly, government may continue to protect the industry after it is no longer an infant.

Strategic trade policy

This argument calls for the protection of high technology industries to help them achieve economies of scale and create comparative advantage, because these industries are important for the growth of an economy.

National security

Certain industries are essential for national defense: aircraft weapons, chemicals and certain minerals. They should be protected so that a country can produce them itself. Moreover, there might be dangeers in having 'unfriendly' nations specialising in weapons production.

However, this can be used by industries that have an indirect use in defense (like the steel industry) to acquire protection against foreign competition. It is also difficult to draw the line between what is essential for national defence or not.

Health, safety, and environmental standards

Some countries are very particular about the health standards and products used by the citizens. In this case protectionism is of extreme Importance to maintain the health and hygiene standards of country following protectionism.

Diversify the economy

Trade Protectionism helps to develop new industries to give more diversity to economy.It protects certain key industries from international competition to try and safeguard jobs and also protects  domestic jobs which are threatened by the rise of imports.

Incorrect or Unnecessary Trade Protection Arguments

The wage protection argument

According to this argument, foreign countries can produce at lower costs because of low wages. This means that these countries will be able to sell at lower prices, which means that domestic firms will be unable to compete, so protection is necessary.

However, a low-wage country has a comparative advantage in producing that good, which is the basis of specialisation and trade.Therefore, low-wage countries should specialise in production of goods that make a lot of use of their cheap labour, and developed countries with more expensive labour should not impose import restrictions on those goods.

Balance of payments deficit argument

If imports are greater than exports, it would seem that they way to reduce outflow of money would be to reduce imports.

However, decreased imports would come at the expense of falling exports in exporting countries, and there is a risk of retaliation.This could be used as a short term emergency measure if there is a serious balance of payments deficit, but there are other ways to deal with this in the long term.

Some current Examples of Trade Protectionism

Devaluation as protectionism

In the past, China has sought to target its exchange rate. They have sought to keep the currency undervalued by using its foreign exchange reserves to buy foreign assets such as dollar securities.However, many argue that this currency manipulation is a form of unfair trade protection policy. By reducing the value of its currency, China help to make its exports more competitive at the expense of the EU and US producers.

Trump tariffs.

In March 2018 President Trump imposed tariffs on steel (25%) and aluminum (10%) from most countries President Trump raised tariffs on imports of many Chinese goods such as fridges, washing machines and clothes.China retaliated by placing tariffs on US agricultural exports, like soy.

European Union Common Agricultural Policy

EU has imposed certain tariff rates on Agricultural markets. The basic purpose is to increase the income if domestic European farmers by helping them in getting higher prices. However, certain reforms and reduction in tariff rates have occured in this regard.