Question Mujtaba Finance & Economics
Advantages of Protectionism in trade
What are the advantages of trade protectionism in imports and exports?
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Answer Internal Staff
Protectionism is the term given to behaviour of states in regard to trade relations. Protectionism is intended to protect domestic industries from competition with foreign producers.
Methods of protectionism commonly include: subsidies for domestic companies in certain industries, tariffs on imported goods and quotas limiting volumes of imported goods. A prominent example is the Common Agricultural Policy of the European Union which provides subsidies to European farmers so that they can compete with cheaper producers in other countries, as well as import tariffs and quotas for agricultural goods (European Commission, 2016). These measures set the market price at a level that can sustain good incomes for European farmers.
Protectionism is generally opposed by economists who favour free market ideals, where competitive and comparative advantages determine the success of different nations’ industries. In theory free markets and free trade will ensure efficient distribution of resources and capital, but there are many benefits from protectionism that exist outside economic models.
One benefit is to the people employed in the protected industries, who might otherwise lose their jobs as companies fail. For example, in Europe there are strong calls to protect steel industries (UK and Germany especially) from cheaper Chinese imports (Parker and Harding, 2016). This would protect those communities that are centred around large steel plants – for example Port Talbot in the UK (BBC, 2016).
This example also serves to show two more advantages of protectionism. One is to defend against uncompetitive practices, for example the Chinese government subsidises steel producers to ensure cheap export steel that undermines foreign markets. Another is to maintain industries that are seen as strategically vital – as steel production is considered militarily important.
Another use of protectionism is in developing new industries that need support in order to establish infrastructure and supply networks and become internationally competitive.
ReferencesBBC, 2016, Tata Steel: Port Talbot workers meet new business secretary (online), available [http://www.bbc.co.uk/news/uk-wales-south-east-wales-36850316], accessed, 08/08/16
European Commission, 2016, CAP at a glance (online), available [http://ec.europa.eu/agriculture/cap-overview/index_en.htm], accessed 08/08/16
Parker, G. and Harding, R., 2016, EU warns China to expect new steel tariffs (online, Financial Times, available [http://www.ft.com/cms/s/0/868316f6-22fc-11e6-9d4d-c11776a5124d.html#axzz4GkAevshU], accessed, 08/08/16