Arguments to Support Protectionism

Protectionism occurs when countries discourage imports of foreign goods and services by imposing tariffs, quotas or other trade restrictions. Five common arguments in support of protectionism are:

1. National security.
If a product is used in the manufacturing of military goods or other security sensitive products, it may not be wise to import it from another country. A domestic industry needs to be protected through trade restrictions to make sure that it continues to supply enough of the product and not become dependent on other countries.

2. Counteracting dumping and foreign subsidies.

When a country dumps its products in a foreign country, it sells them at below cost. Dumping is done to eliminate competition in a foreign country and to establish a monopoly position. For example, if a Japanese company sells microchips in the United States at below cost in order to eliminate competition in the U.S. it is considered dumping. Sometimes foreign governments subsidize their domestic firms to encourage dumping. To retaliate against dumping and unfair foreign subsidies, the argument is that tariffs, quotas, and other trade restrictions need to be implemented.

3. The infant industry argument.
Some countries are newly developing and have industries that are just beginning to grow. The argument is that they need to be protected from other countries whose industries are fully developed, already. After a few years of protection, the industry is expected to be mature and ready to compete. Trade restrictions should be lifted at this point.

4. Protecting domestic jobs.

Domestic industries lose sales and jobs due to foreign competition. Examples of industries affected by foreign competition include the steel, textile, and automobile industries. The argument is that to protect these industries and to prevent layoffs, trade restrictions need to be imposed.

5. Improving the trade deficit.

A country experiences a trade deficit when the value of its merchandise imports exceeds the value of its merchandise exports. The argument is that by restricting imports through tariffs and quotas, a country will improve its trade deficit.

Rebuttals to Protectionist Arguments

Not everyone supports the above-mentioned arguments in favor of trade restrictions.

1. Rebuttal of the national security argument.
Trading defense-related products with other countries serves as a deterrent against war. The more we import from and export to other countries, the more dependent we are upon each other. This makes it highly unlikely that a conflict will ever arise.

Even in the case of a conflict with a country from which we import defense-sensitive products, it may not be difficult to increase domestic production.

We can also import the national security sensitive product from a variety of countries. It is unlikely that we will be at war with all of them.

2. Rebuttal of the counteracting dumping and foreign subsidies argument.
Dumping and foreign subsidies means lower prices for our consumers. This will leave them more money to purchase other goods, including American goods. Some economists claim that dumping may hurt some domestic companies but actually helps many of our own consumers.

If dumping leads to a monopoly, it will be challenged once the price is too high. New domestic companies will enter the market. In free markets high prices always attract new entrants into the market in the long run.

3. Rebuttal of the infant industry argument

Competition, not protectionism, is what strengthens industries. Beginning companies should not ask to be protected, because it is normal for beginning companies, as well as beginning industries, to incur losses during the start-up phase. Once developed, unprotected, it can compete better with mature industries around the world, and it will begin to make profits.

Countries often protect their infant industries longer than necessary. Once tariffs and quotas are in place, they are difficult to do away with because industries grow dependent upon them. It is better not to impose them at all, right from the start.

4. Rebuttal of the protecting domestic jobs argument.
If we impose import restrictions to protect domestic industries, other countries will retaliate. Jobs will be lost in export-related industries, and there will be no gain in overall employment.

Protectionism means less specialization and no advantages of free trade.

Protectionism means less competition, less efficiency, less production, higher prices, lower-quality products, and less variety of products for consumers.

5. Rebuttal of the improving the trade deficit argument.

Reducing imports through tariffs and quotas leads to reductions in exports (see last argument), so the overall deficit will not improve. Overall productivity and wealth will decrease because of reduced specialization and competition.

Most economists do not support protectionist arguments. Many agree with Adam Smith and David Ricardo that, in the long run, free trade leads to higher standards of living and increased wealth.