Infant Industry Argument

Certain industries possess a potential comparative advantage but have not yet exploited the potential economies of scale.  

Short 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.

Protection against “ dumping”

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.

Improving the balance of payments in goods and services

Trade 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.

Externalities and Import Controls

Protectionism 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.

Non Economic Reasons

Other 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

The Government may also wish to protect against high levels of imports to protect domestic employment

Protection 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

Loss of economic welfare

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 governments.

There 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