International Business

Arguments Against Protectionism In International Trade

Protectionism provides ample opportunities for the expansion of home market for domestic industries. By cutting imports, the government encourages the sale of homemade goods within the country.  But is is not free from criticism. The following arguments can be put forward against the policy of protectionism are given below.

Arguments Against Protectionism

1. Encouragement to inefficient Industries. Under free trade policy, there is no place of uneconomic and nonviable or weak industrial units because of tough foreign competition. But, under protectionism, the domestic industries are not warded about the foreign competition and therefore, they do not fight hard to introduce innovation to the old pattern of production. Protection allows the industries an opportunity to earn more without enabling them to improve efficiency. Indirectly, it feeds the weak and inefficient industrial units.

2. Low Economic Utilization of Natural Resources. Under free trade economy, every country produces only those commodities, in which it enjoyed the advantages of comparative costs based upon the principles of territorial division of labor and specialization. But these principles are not given due importance under the policy of protection. In other words, the country, under protectionism produces even those goods in which it enjoys no cost advantage. The natural resources are not therefore, utilized in full.

3. Creation of Monopoly. As foreign competition is eliminated under protectionism, certain vested interests create monopoly to earn high profits by exploiting the consumers and workers.

4. Production as a claim. Protection once granted to any industry becomes very difficult to withdraw it later on even after the industry is fully developed. The reason is that, during the period of protection, certain vested interests emerge which oppose any attempt on the part of the government to withdraw it. It becomes a matter of claim for them.

5. Loss to Consumers. The protection volley is against the consumers interests for two reasons—
(i) They have to pay higher prices for country made goods owing to absence of foreign competition, and
(ii) Their freedom of choice is infringed due to restricted availability of foreign better quality goods at reasonable rates.

6. Inequality in the Distribution of National Income. Policy of protection leads to inequality in the distribution of income on the one hand, it imposes an additional burden on the pockets of consumers in the form of higher prices and on the other hand, it gives an opportunity to earn higher profits industrialists who already belong to rich section of the society. It, therefore, creates inequality in the society.

7. Reduced Volume of Foreign Trade. Under its protection policy, the government imposes restrictions on the imports of foreign commodities. Other countries also retaliate by levying higher duties or put restrictions on their imports from that country. Such restrictions bring down the volume of total foreign trade.

8. Political Corruption. Protectionism leads to political corruption. The big and influential industrialists try to secure protection for their industries, even though they are quite strong to face foreign competition, by offering bribes to corrupt political leaders and government officials. There is no scope of such corruptions under free trade policy.

9. Strained Foreign Relations. When a government restricts its imports by levying heavy import duties the other countries retaliate in the same manner. This produces unnecessary strain on their political relationship. An analysis of the merits and demerits of protection and free trade policies, it can be safely concluded that the policy of protection is in the interest of the nation as its rapid industrial development according to the national priorities depends upon protection or industries. The policy also protects the national resources which can be better used for the country.

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