4.3.1 Arguments For Trade Protection Notes

1. Trade Protection leads to positive and negative impacts for economies, with welfare loss being always present due to inefficiencies.
2. Yet, governments still fight for protection.
3. It is important to note that not all arguments are positively looked at by economists.
4. Under non-economic or long-term considerations, some arguments are justifiable while others seem questionable.

Justifiable Arguments

Infant Industry

These infant industries may struggle to compete with established global firms that are more efficient, have less costs and incur the benefits of economies of scale. Therefore:

1. Shielding these emerging industries from international competition initially allows them to grow and become competitive.
2. Hence, they can be protected up until their costs are not comparatively high to foreign producers where they are ready to compete and will not get disincentivised by foreign producers.

This argument is strong on the basis that countries may have a comparative advantage on an industrial good but cannot compete initially without initial establishment and protection.

However, issues arise with this argument as:

1. It's difficult for governments to predict which industries will achieve relatively lower costs in the future.
2. Firms that receive protection may become inefficient and reliant without an incentive to grow.
3. Governments may still continue protecting firms even after maturity.

National Security

Some industries, especially in defence, are vital for national security as:

1. Protecting these sectors ensures that a country remains self-sufficient in times of crisis, avoiding dependency on potentially unreliable foreign suppliers.
2. Further, having an unfriendly nation specialise in such goods and services may have negative potential effects when in crisis.

This argument is also considered to be reasonable however:

1. Some industries that are indirectly related or have small connections with defence industries try to receive protection.
2. This leads to lack of competition in those respective industries and could lead to inefficiencies as well.

Health and Safety Standards

Trade restrictions help maintain strict health, and safety standards, ensuring substandard foreign products do not endanger citizens or the environment.

However, this argument can be used as a hidden barrier to reduce competition for foreign producers and create bureaucratic delays (see 4.2.4 Administrative Barriers).

Environmental Standards

Similarly, imposing restrictions to maintain environmental standards could be crucial for countries, particularly those focused on sustainability.

1. As the current world is shifting towards more sustainable growth, environmental protection could be a valid protection imposed
2. However, this means countries could take advantage of these standards easily.

Economic Diversification for Developing Countries

Free Trade (alongside comparative advantage) encourages a country to specialise its production into one or a fewer range of goods and services

1. Developing countries usually specialise in very few primary commodities.
2. Hence, they struggle to grow and develop other sectors with trade.
3. Further, they face many issues from over-reliance.