Reasons For Trade Protection:

In this section we introduce the reader to various reasons for trade protection in spite of the benefits from free trade.

(i)The protection of infant firms:

Infant industries are those firms, which are young. The absence of economies of scale to them makes their unit cost of production higher than older and efficient firms in other countries. Protection may be justified during the early growth of an infant firm. As the infant firms grow, skills and productivity, as well as economies of scale will grow, so increasing the firms’ relative competitive advantage.

(ii)To protect domestic labour against cheap foreign labour:

The theory comparative cost advantage assumes that factors of production are both fully employed and mobile within countries.If large-sale unemployment exists within a country, protection may be used to increase employment.

(iii)Protection against dumping:

It could be looked at as the export of commodities priced below cost of production. Dumping is generally looked upon as an unfair trading practice and for that reason industries fearing competition from
dumped goods asks for tariffs to protect them. An export subsidy is a salient form of dumping. Export subsidies are direct payments made or the granting of tax relief and subsidized loans to the nation’s exporters or potential exporters so as to stimulate the nation’s exports.These make the nation’s export price competitive on the international markets.

(iv)National Security:

Some key industries such as agriculture and industries producing goods that are important for the defence of the country must be maintained. Countries therefore protect these industries.
 
(v)To raise revenue:

Tariffs are sometimes justified as a means of raising revenue for the government, but in modern economies this is a comparatively unimportant source of government revenue.