Arguments against protectionism, Managerial Economics

Assignment Help:

Arguments against protectionism 

Most of the arguments for protectionism may be met with counter arguments, but underlying the economic arguments as opposed to the social, moral, political, strategic,  etc, is the free trade argument.

Free trade argument

This, in brief, maintains that free trade allows all countries to specialize in producing commodities in which they have a comparative advantage.  They can then produce and consume more of all commodities than would be available if specialization had not taken place.  By implication, any quotas, tariffs, other forms of import control and/or export subsidies all interfere with the overall advantages from free trade and so make less efficient use of world resources than would otherwise be the case.

Reduced output argument

It has been said that import controls will protect jobs initially, but not in the longer run.  If we in the home country limit imports, then other countries will have less of our currency with which to buy our exports. 

This will lead to a decline in sales and a loss of jobs in  export industries.  The overall effect is likely to be a redistribution of jobs from those industries in which the country has a comparative advantage to those in which it has a comparative disadvantage.  The net result will be that total employment is unchanged but total output is reduced.

The infant industries seldom grow up

The infant industry argument is sometimes met with the claim that infant industries seldom admit to growing up and cling to their protection when they are fully grown up.  Most economists, however, appear to accept the infant industry argument as a valid case for protection provided it is temporary.

Gains from comparative advantage

The argument for protection against low wage foreign labour is partly a moral argument which is outside the scope of positive economics, but even the economic part of the argument that it will drag down the living standards of high wage economies can be shown to be invalid.  It is true as noted above that the payment of low wages will allow a country to export their goods cheaply and so possibly undercut those of high wage countries.  However, it must be noted that countries importing these cheap goods gain by virtue of their low cost in terms of the goods required to be exported in return.  This again is another use of the comparative advantage argument.

No Validity in economics

The other arguments such as the need to avoid over dependence on particular industries and the defence argument are really strategic arguments which are valid in their own terms and for which economic science is largely irrelevant.

Retaliation

Advocates of free trade also believe that if one country imposes import restrictions, then those countries adversely affected will impose retaliatory restrictions on its exports, so it will not end up any better off.  This could lead to a "beggar-my-neighbour" tariff war, which no one can benefit from, and which contracts the volume of world trade on which every country's international prosperity depends.

Inflation

If key foreign goods are not free to enter the country (or cost more), this will raise their prices and worsen the rate of inflation in the country.

Inefficiency

It is argued that if home industries are sheltered from foreign competition there is no guarantee that they will become more efficient and be able to compete in world markets.


Related Discussions:- Arguments against protectionism

Consumer pays for peanut butter, Peanut butter monopolist Calvé supplies pe...

Peanut butter monopolist Calvé supplies peanut butter to Albert Heijn in an isolated village. The supermarket is a monopolist in the village. Demand for peanut butter is given by:

Factors affecting size of national income, Factors affecting the size of  N...

Factors affecting the size of  National Income The size of nation's income depends upon  the quantity and quality of the factor endowments at its disposal. A nation will be ri

"Principal Agent Problem", For this assignment, write at least two pages do...

For this assignment, write at least two pages double spaced about how the principal agent problem applies to: 1. CEO''s, and their relationship with the firm, it''s employees, and

Mba assignment, what is the role of managerial economics in running a busin...

what is the role of managerial economics in running a business?

ECONOMIC THEORY, How does economic theory contribute to managerial decision...

How does economic theory contribute to managerial decisions?

Managerial economics helps create utility for the society, The theory of co...

The theory of consumer's behavior seeks to explain the determination of consumer's equilibrium. Consumer's equilibrium refers to a situation when a consumer gets maximum satisfacti

How government intervenes to improve allocation of resources, Problem 1: ...

Problem 1: You are the manager of a reputed five star hotel in Mauritius and you have been asked by the director of the hotel to advise on possible pricing strategies to increa

Monetary policy, Monetary policy The problems concerning the abili...

Monetary policy The problems concerning the ability of monetary policy to influence the economy, as for instance the doubts about the ability of lower interest rates to st

Profit maximization theory of business, critically analysis the profit maxi...

critically analysis the profit maximisation theory of business firm and illucidet the role of profit in business

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd