Arguments for and against Protection Overview This chapter has two purposes: To present a framework and a rule for evaluating arguments offered in favor of limiting imports, and to apply the framework and rule to several prominent arguments for protection. The framework allows us to look at situations in which the free market may not result in economic efficiency, because of incentive distortions that result in market failures.
What are common reasons for governments to implement tariffs? By Investopedia Updated April 4, — A tariff is a tax imposed by a governing authority on goods or services entering or leaving the country and is typically focused on a specified industry or product.
It is meant to alter the balance of trade between the tariff-imposing country and its international trading partners. For example, when a government imposes an import tariff, it adds to the cost of importing the specified goods or services.
The additional marginal cost added by the tariff discourages imports, thus affecting the balance of trade. There are various reasons a government may choose to impose a tariff. The most common examples of rationale used to justify tariffs are protection for nascent industries, national defense purposes, supporting domestic employment, combating aggressive trade policies and environmental reasons.
Infant Industries Tariffs are commonly used to protect an early-stage domestic industry from international competition. The tariff acts as an incubator that, in theory, should allow the domestic industry ample time to develop and grow into a competitive position on an international landscape.
National Defense If a particular segment of the economy provides critical products with respect to national defense, a government may impose tariffs on international competition to support and secure domestic production in the event of a conflict.
Domestic Employment It is common for government economic policies to focus on creating an environment where constituents have robust employment opportunities. If a domestic segment or industry is struggling to compete against international competitors, the government may use tariffs to discourage consumption of imports and encourage consumption of domestic goods in hopes of supporting associated job growth.
For related reading, see: Governments may use tariffs to mitigate the effects of foreign entities employing what may be considered unfair tactics. Environmental Concerns Governments may use tariffs to diminish consumption of international goods that do not adhere to certain environmental standards.Economic arguments in favor of protection policy are: 1.
“Infant Industry” Argument 2.
the infant industry argument is not against free trade. The terms of trade can be improved by making foreigners pay whole or part of the tariffs. For, the imposition of tariff duty will lead to a rise in the price of the importing country and a. International Trade Barriers.
Economics. Most trade barriers work on the same principle–the imposition of some sort of cost on trade that raises the price of the traded products. If two or more nations repeatedly use trade barriers against each other, then a trade war results.
The Argument Against Barriers. The imposition of tariffs to protect national security. This argument against the tariff measures being legally justified, is amply supported by the deep national security ties between Canada and the U.S., described below.
National security ties as a basis for Canada’s exemption. An argument against using trade restrictions to punish an offending nation is that: A. sanctions seldom achieve their goal of forcing change in the offending country.
B. sanctions are relatively harmful to the citizens of the offending country. Protectionism is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government timberdesignmag.coments claim that protectionist policies shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors.
Opposition to all tariff aims to reduce tariffs and to avoid countries discriminating between differing countries when applying tariffs. The diagrams at right show the costs and benefits of imposing a tariff on a good in the domestic economy.