industries possess a potential comparative advantage but have not yet
exploited the potential economies of scale.
term protection from established foreign competition allows the infant
industry to develop its comparative advantage.
At this point the protection could be relaxed, leaving the industry to
trade freely on the international market. The danger of this form of
protection is that the industry, free of the disciplines of foreign
competition, will never achieve full efficiency.
against “ dumping”
refers to the sale of a
good below its cost of production. In
the short term, consumers benefit from the low prices of the foreign goods,
but in the longer term, persistent undercutting of domestic prices will force
the domestic industry out of business and allow the foreign firm to establish
itself as a monopoly. Once this
is achieved the foreign owned monopoly is free to increase its prices and
exploit the consumer. Therefore
protection, via tariffs on 'dumped' goods can be justified to prevent the
long term exploitation of the consumer.
the balance of payments in goods and services
barriers might be viewed as one vehicle to control the growth of demand for
imports and therefore improve the overall balance of trade in goods and
services. The main problem with this is that import controls do not address
fundamental issues of a lack of international competitiveness - and that
trade barriers simply as a device for controlling a trade deficit do not wash
with the World Trade Organisation.
and Import Controls
can also be used to take account of externalities
and dealing with de-merit goods.
Goods such as alcohol, tobacco and narcotic drugs have adverse
social effects and are termed de-merit goods. Protectionism can
safeguarding society from the importation of these goods, by imposing high
tariff barriers or by banning the importation of the good altogether.
arguments have been forward for protection, which although they may be valid
are not purely economic. Countries
may wish not to over-specialise in the goods in which they possess a
comparative advantage. One of the potential dangers of over-specialisation is
that unemployment may rise quickly if an industry moves into structural
decline as new international competition emerges at lower costs
Government may also wish to protect against high levels of imports to protect
may also be used to prevent trade with certain countries on political
grounds. The UK government
currently has trade sanctions with numerous countries, including Iraq,
Nigeria and in certain
commodities with the former Soviet bloc countries.
PROBLEMS WITH IMPORT PROTECTION
of economic welfare
is reduced through higher prices and restricted consumer choice.
Firms that are protected from competition have little incentive to
reduce production costs. These disadvantages must be considered carefully by
is the danger that one country imposing import controls will lead to
retaliatory action by another
leading to a decrease in the volume of world trade