Question

Nonprotectionist policies is the to protect the health and safety of people, animals, and plants: to protect or improve the environment.
d. What could happen to the domestic economy of a country when trade barriers are eliminated and why?

Answer 1

When an industry is in the infant stage, it is very crucial that the government protects the industry and assists it to grow and become mature. This protection is given to the industries by the government in the form of protectionist measures like tariffs, quotas etc. This trade barrier increases the price of the imported good which reduced the domestic demand of the imported good. So people substitute these imported goods for the domestically produced goods. This helps the industry grow. When the industry grows, it creates employment, increases the incomes of people, increases demand and thus the overall economy of a nation.

But when these trade barriers are removed, it creates problems for the domestic industry. First, if the domestic industry does not become matured enough, it would have a greater cost of production than the other developed industries around the world. Naturally, this would lead to higher prices of the domestically produced goods than the foreign goods. This would lead to higher demand for imports and lower demand for domestic products. Second, higher imports would lead to a higher trade deficit which becomes a big problem if it increases rapidly. Third, as demand for domestic goods reduce, production reduces, so employment falls and unemployment increases, incomes fall and finally growth of the economy falls. So, this is how elimination of trade barriers can hurt an economy.