Case for trade protection Assignment Help

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Case for trade protection:

We can show that  although free trade is beneficial for all countries taken together, unilateral movement towards free trade may not be desirable. That is, very often a country stands to gain by deviating from a strategy of free trade and adopting protectionist measures, even when all other  countries have adopted fiee trade The theories of protectionism outlined below will show you  that countries often apply protectionist measures to restrict the inflow of imported goods, as domestic economic agents stand to gain from these measures. The gains may arise from the resultant  improvement in terms of trade Or, protectionist measures may improve welfare by correcting domestic market failures that arise due to the existence of externalities.

Further, from the common justifications provided for adopting protectionist measures, you will see that often, individual countries have a strong incentive to  deviate from a strategy of free trade. For instance, protectionist policies may be used to protect infant industries, prevent dumping, and induce foreign investment in the domestic economy.

Therefore intervention of a third party is required to induce countries to adopt policies of free trade. Third party intervention is also called for to ensure that countries actually stick to their commitment to free trade subsequently  and do not revert to their dominant strategy  of protection. This provides a justification for supranational coordinating bodies like the World Trade Organisation  (WTO).  

Infant Industry Argument Market Failure Argument
Protection against Dumping Protectionism and FDI
Terms of Trade Argument
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