International Business

Methods Of Protectionism In International Trade

The various arguments have been advanced in favor of protectionism (the policy of protection). Under protectionism, the domestic industries are protected from the competition of foreign goods. The home industries are granted protection in any one or more of the following ways:

1. Protective Duties. With a view to make the imports costly, when the government imposes duties on the imports of foreign goods, such duties are called protective duties. Such duties may be ad-valorem (according to the value of imports) or specific (according to the weight or measurement). When the goods are weighty but low in value, the duties are imposed according to the weight but when the goods are costly the duties are ad-valorem.

 2. Commercial Prohibition: Sometimes, the government prohibits the imports of certain commodities with a view to providing protection to home industries. This measure is taken when the goods imported are not essential items.

3. Quota System. The government sometime cuts the imports of certain commodities with a view to afford protection to home industries by fixing the quota of the commodities to be imported from abroad in advance. Quota may be fixed country-wise on reciprocal basis or it may be irrespective of the country.

4. License System. Under this system, the government issues license to the importers authorizing them to import so much of the commodities from abroad as mentioned in the license & No person other than authorized licensee can import the commodity or no imports can be made of the quantities more than those mentioned in the license. Thus, the government controls the imports of the country according to the requirements of the country with a view to protect the home industries.

5. State Trading. State trading implies the taking over the entire forcing trade by the government of the country. It make easier to control the imports of the country by .the government. This method also protects the home industries.

6. Discriminatory Transport Charges. Sometimes the government imposes discriminatory transport charges (different charges for different goods) on the imports of commodities. It makes the imports of certain commodities costlier in the home market which, in turn, diminishes their demand.

7. Devaluation. Devaluation refers to the fall in value of home currency in terms of other currencies, when the home currency is devaluated, the imports automatically become dearer and therefore, they are discouraged.

8. Exchange Control. Under this system, government holds monopoly on the foreign exchange. Every importer, under this method, has to secure foreign exchange from the government to make the payments for imports. The government releases foreign exchange only for the imports which are made either with the permission of the government or which are not against the interest of home industries.

Arguments In Favour Of Protectionism

Arguments Against Protectionism In International Trade 

Importance Of Protectionism In International Trade

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