Arguments for Protectionism

Question 1

Infant indusry argument

Answer 1

• Certain industries possess a potential (latent) comparative advantage but have not yet exploited economies of scale. Short-term protection from established foreign competition allows the ‘infant industry’ to develop its comparative advantage, at which point the protection could be relaxed.
• [Evaluation: The danger here is that the industry will never achieve full efficiency. The short-term protectionist measures often start to appear permanent.]

Question 2

Protection of jobs (Sunset industry argument)

Answer 2

• Under free trade, there is more choice for consumers. This may result in increased imports, at the expense of domestic products and employment.
• If a domestic firm is a large employer, but is it in a decline (i.e. a sunset industry) because it is suffering from international competition, a government might protect it to save the industry and reduce the risk of unemployment.

Question 3

Avoiding over-specialisation:

Answer 3

Governments may want to limit over-specialisation if it becomes too dependent on one/two export commodities, as any change in the world market for these goods may have serious consequences for their economy.