Arguments against free trade Flashcards
acronym and for arguments for trade protection and name all of them
B – Balance of Trade argument
A – Anti Dumping Argument
D – Diversification Argument
F – Foreign Labour Argument
I – Infant Industry Argument
N – National Security Argument
E – Employment Argument
Balance of Trade argument
Some argue that restricting imports can reduce a trade deficit,
However counter argument is that it will lead to retaliation formm contires for imports.
Anti Dumping argument
The WTO says that dumping is “the practice whereby a company exports a product at a price lower than the price it normally charges in its own home market”
The aim of dumping is to drive domestic producers out of business. Over time these overseas firms can sustain the losses. In the long run as domestic producers leave the market, they will increase prices.
One difficulty of this argument is proving whether dumping is actually taking place. F
Diversification argument
This arguments says that the principle of comparative advantage may mean that a country has to specialise in a narrow range of products. (ie only iron ore)
Diversifying industries may benefit a country instead of “placing all their eggs in one basket”.
In reality no country has a comparative advantage in only one or two industries.
(Cheap) Foreign Labour argument
It is often claimed that Australian industries need to be protected from countries where wages are much lower. We cannot compete on wages.
Wages is a function of productivity. Wages are higher in Australia because our productivity is higher due to our superior capital and technology.
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Infant Industry argument
It is argued that infant or newly established industries need protection in their early years until they mature and take advantage of economies of scale.
The issue is that protection tends to be long term and not short term. Long term protection means that the infant industries become accustomed to operating with little competition. The incentive to innovate and become efficient and be able to compete without protection is removed.
Protection can be justified in the short term, but must be regularly reviewed to ensure it is progressively removed.
National Security argument
It is argued import protection is necessary to protect industries that are vital to the economy in case of wartime or conflict. Examples of industries that have been argued are defence, energy or medical supplies.
However which industries are vital to the economy? May industries could present a case for this.
This argument becomes popular during times of global conflict. However, trade and especially free trade, fosters international cooperation and harmony whilst protectionist policies reduce it.
Employment argument
Protection shifts consumer spending to domestic goods, boosting jobs in protected industries. However, higher input costs hurt other industries, reducing their competitiveness and employment. Consumers also have less to spend elsewhere, offsetting job gains in protected sectors.
