Arguments made in support of the policy of protection
Though theoretically the policy of free trade is beneficial to all, some countries have to resort to the policy of protection in certain circumstances. The arguments in favour of protection are conveniently classified into two categories namely the economic arguments and the non economic arguments.
Economic Arguments
- The infant industry argument
A newly started industry is called an infant industry. It can never compete with a well established industry with matured entrepreneurs, experienced trend and dedicated labour force and well built infrastructure. The developing countries have infant industries. They require some time to develop the infrastructure, train the workers and inculcate the spirit of dedication to work. During this period they require protection against the well established industries of the developed countries.
This argument was made by the german economist Frederic List against the well established british industries in the post industrial revolution period. To give his quotation “Nurse the baby, Protect the child and Free the Adult”.
In practice it is difficult to find out an infant industry with high potentialities.
- Diversification Argument
Free trade policy results into specialization of different countries in the production of different goods and services. Specialization is desirable but excessive specialization is risky. If the concerned industry faces a difficulty due to global situation or some domestic problem the entire economy of the country may be devastated. Hence it is safe to develop a number of industries even though they may have no advantage at present.
- Anti Dumping Argument
Some countries resort to dumping. The receiving country has to protect its industries by using tariff and non tariff barriers.
- Expediting recovery
A country facing a depression has to restrict the imports of goods from other countries. If imports are not restricted the supply of those goods in the receiving country will increase still further and the country will find it almost impossible to recover from recession.
- Promoting Employment
If a country develops some industries under protection, they may work as catalyst agents and help in the development of several other industries and that may create employment opportunities.
- Balance of Payments Arguments
If a country if facing a deficit in the BOP, it has to restrict imports by using tariffs or non tariffs barriers to eliminate the deficit in the BOP.
- Retaliation Argument
If country A imposes restrictions on imports from country B, obviously country B will have to impose restrictions from imports from country A.
- Pauper Labour Argument
This argument is made by the trade unions operating in developed countries. They maintain that the wages are lower in the developing countries, therefore the cost of production is lower and prices are lower. If the countries follow free trade policy these goods will rush into the developed economies and will increase the supplies there. A rise in supply will result in to a fall in price and fall in wages, so the wages in the developed countries will also decline. The workers will become poor.
This argument is fallacious. The wages in developing countries are low yet the cost of production is high. The quality of the goods is also inferior as compared to the quality of goods in developed countries. The developing countries hence cannot compete and beat the developed countries.
- The key industries argument
Every country has to develop the key industries whether or not they enjoy economic advantages at present.
Non Economic Arguments
- Defence Industries
A country has to develop industries producing defence equipments whether they enjoy economic advantages or not. It is risky to depend upon other countries in respect of defence.
- The Preservation Argument
Certain industries are associated with some important period in the history of a country. Those industries have got to be protected on grounds of emotions and not on grounds of economic advantage.
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