Arguments Against Protectionism

Question 1

Production inefficiencies:

Answer 1

Firms that are protected from competition have little incentive to reduce production costs. This can lead to X-inefficiency (where firms have little incentive to control their costs) and higher average costs.

Question 2

Lack of competition:

Answer 2

Tariffs push up the prices faced by consumers and insulate inefficient sectors from competition. They penalise foreign producers and encourage the inefficient allocation of resources both domestically and globally. This lack of competition may also result in lower quality.

Question 3

oss of economic welfare:

Answer 3

Tariffs create a deadweight loss of consumer and producer surplus. Welfare is reduced through higher prices and restricted consumer choice.

Question 3

oss of economic welfare:

Answer 3

Tariffs create a deadweight loss of consumer and producer surplus. Welfare is reduced through higher prices and restricted consumer choice.