Reasons for Protectionism

• Protectionism

  Any barrier that restricts free trade taking place between nations
• Types of protectionism

  • Tariffs (tax on imports)
  • Quota (quantity limit)
  • Embargo (ban on imports)
  • Subsidies (to domestic producers)
  • Administrative barriers (e.g. health/safety standards, environmental standards)
• Infant industry argument

  • Newly developing domestic firms need time to grow and develop economies of scale to compete with established international rivals
  • Government imposes temporary protectionist measures like tariffs or quotas to allow domestic firms to grow
• The infant industry argument is a weak argument as it allows room for inefficiency and distorts the theory of free trade
• Dumping


  • A country sells goods/services below the cost of production, often due to excess subsidies or minimum prices
  • Importing country may retaliate with protectionist measures
• Proving dumping is taking place is very difficult, and protectionist measures may be unjustified if dumping is not actually occurring
• Protecting domestic employment

  • Government imposes protectionist measures to protect jobs and prevent structural unemployment as domestic industries decline
  • But this just delays the inevitable decline of uncompetitive industries
• Protecting against unfair low-cost labour abroad


  • Countries with high labour costs may impose protectionist measures to 'level the playing field' against imports from low-cost labour countries
  • This can include strict environmental/safety standards as non-tariff barriers
• Raising government revenue


  • Developing countries may use tariffs to raise revenue for public goods and infrastructure
  • Tariffs are relatively easy to collect
• Using protectionism to improve the current account deficit is a weak argument as it risks severe retaliation from trading partners
• Avoiding over-specialisation


  • Protectionism allows countries to develop a diverse range of industries, reducing reliance on a single export industry