5.1-5.2 arguments for and against trade protection

Question 1

arguments for trade protection

Answer 1

1. Protecting infant (sunrise) industry.
   An infant industry is a new domestic industry that has not had time to establish itself and achieve efficiencies in production. They are unable to compete with more ‘mature’ competitor firms from abroad. Therefore, a new firm with high costs of production may need protection from imports until it grows to a size where protection is no longer needed.

It may be difficult for governments to know which particular industries have the potential to become low cost producers. Industries protected from competition may not have a strong incentive to become efficient. Governments may continue to protect an industry long after it has matured and is no longer an infant.

tariff and quotas reduced the amount imports which recuses foreign competition

2. Anti-dumping
   Dumping is the practice of selling a good in international markets at a price that is below the cost of producing it. Dumping can harm domestic industries by undercutting prices, leading to potential market failures, loss of jobs, and the collapse of local businesses. Tariffs or quotas are used to limit the import of the dumped god.

It is difficult to prove a country is ‘dumping’.

3. Unfair competition
   neutralise advantages gained by foreign competitors. protect domestic industries from being overwhelmed by artificially low-priced imports from subsidies (hidden protection)

it is hard to prove that a country is doing these things

4. Protecting domestic employment
   tariffs protect domestic industry and workers from cheaper imports
   stabilising economies, high unemployment can lead to deflation

Question 2

arguments against trade protection

Answer 2

1. misallocation of resources
2. higher prices for consumers
3. retaliation and trade wars
   harm global trade and economic relations
4. lack of choice and quality for consumers