Reasons for Protectionism

Protection of a young industry

New and small firms known as ‘infant industries’ will be unable to benefit from the economies of scale enjoyed by larger foreign competitors. These infant industries will have higher prices than foreign firms and so will be unable to sell their goods. Tariffs or other forms of protection can be used to make foreign goods dearer and so allow infant industries to grow.

To prevent unemployment

Due to cheaper imports, people may not buy the goods produced within the country and as a result of this, the home industries decrease production due to lack of demand, this further leads to workers becoming redundant and industries closing down. This leads to structural un- employment so in order to prevent unemployment, protectionist policies are carried out.

To prevent dumping

Protectionism is carried out in order to prevent dumping of goods. Dumping occurs when  one country  floods the market in another country with a product at a price far less than it costs to produce in order to force rival firms in that country out of business. Eg: Japan was accused of using  dumping  to take over  a global lead in the production of television screens and motorbikes, forcing producers of these products in many other countries out of business.

Balance of payments problem

If a country is persistently spending more on imports than it is earning from exports, it is getting into debt with the rest of the World. if it  finds difficulty in increasing its exports it may be forced to remedy the situation by placing  limits on its imports. So protectionism may be used to overcome a deficit in the balance of payments.

Strategic arguments

Some industries may be regarded as essential to secure a country’s survival in time of war. It may be necessary to protect agriculture, steel, chemicals and several types of engineering industries by tariffs and quotas to prevent firms from being driven out of business by foreign competition.

Because other countries use barriers to trade

Before any country removes barriers to trade on foreign goods it needs to be sure that foreign countries will remove barriers to trade on their goods. With many dozens of trading countries, it is very difficult to get agreement on removal of barriers to trade.

To prevent overspecialization

Free trade encourages countries to specialize in the goods in which thay have a comparative advantage. Yet specialization in one or two products can be dangerous in the modern World.

The demand for goods & services is always changing and if a country relies on just on or two goods it risks a huge fall in its income if demand moves away from these goods to others. Protectionism allows a country to keep a wider range of industries alive and so prevents dangers of over-specialization.