<< Chapter < Page Chapter >> Page >

By the end of this section, you will be able to:

  • Explain and analyze various arguments that are in support of restricting imports, including the infant industry argument, the anti-dumping argument, the environmental protection argument, the unsafe consumer products argument, and the national interest argument
  • Explain dumping and race to the bottom
  • Evaluate the significance of countries’ perceptions on the benefits of growing trade

As previously noted, protectionism requires domestic consumers of a product to pay higher prices to benefit domestic producers of that product. Countries that institute protectionist policies lose the economic gains achieved through a combination of comparative advantage, specialized learning, and economies of scale. With these overall costs in mind, let us now consider, one by one, a number of arguments that support restricting imports.

The infant industry argument

Imagine Bhutan wants to start its own computer industry, but it has no computer firms that can produce at a low enough price and high enough quality to compete in world markets. However, Bhutanese politicians, business leaders, and workers hope that if the local industry had a chance to get established, before it needed to face international competition, then a domestic company or group of companies could develop the skills, management, technology, and economies of scale that it needs to become a successful profit-earning domestic industry. Thus, the infant industry argument for protectionism is to block imports for a limited time, to give the infant industry time to mature, before it starts competing on equal terms in the global economy. (Revisit Macroeconomic Policy Around the World for more information on the infant industry argument.)

The infant industry argument is theoretically possible, even sensible: give an industry a short-term indirect subsidy through protection, and then reap the long-term economic benefits of having a vibrant, healthy industry. Implementation, however, is tricky. In many countries, infant industries have gone from babyhood to senility and obsolescence without ever having reached the profitable maturity stage. Meanwhile, the protectionism that was supposed to be short-term often took a very long time to be repealed.

As one example, Brazil treated its computer industry as an infant industry from the late 1970s until about 1990. In an attempt to establish its computer industry in the global economy, Brazil largely barred imports of computer products for several decades. This policy guaranteed increased sales for Brazilian computers. However, by the mid-1980s, due to lack of international competition, Brazil had a backward and out-of-date industry, typically lagging behind world standards for price and performance by three to five years—a long time in this fast-moving industry. After more than a decade, during which Brazilian consumers and industries that would have benefited from up-to-date computers paid the costs and Brazil’s computer industry never competed effectively on world markets, Brazil phased out its infant industry policy for the computer industry.

Questions & Answers

define law of demand and draw demand curve
Naseer Reply
state that the higher the price of a product the lower the quantity demanded
nonduduzo
what is the price elasticity of demand a unit free measure of the sensitivity of the quantity demand to a price change?
ada Reply
what is normative economics
kanakadurga Reply
In normative economics we try to understand whether a mechanism is desirable or not.
arshad
not
Mark
consider the market for chocolate chip cookies .suppose there is an increase in the price of cake flour used in the production of chocolate chip cookies . Demonstrate graphically and explain the effects this will have on the equilibrium price and quantity of chocolate chip cookies.
Costa Reply
what is price demand?
Alamin Reply
what is the price demand ?
Alamin
what is cardinal approach?
Alamin
importance of elasticity to an economy
Nayiga Reply
what is elasticity
Costa Reply
elasticity refers to the measurement of a percentage change of one economic variable in response to a change in another. Primarily, this percentage change will follow a change in price relative to changes in other factors.
Abdullahi
When desire of goods increases what is the respond of its prices?
abubakar Reply
Then definitely price of Good will increase, As Demand has direct relation with the price
Alam
Right
abubakar
Qd=200 and Qs=5+2p . find the equilibrium price and quantity
Margret Reply
what is mean by 2 p
Alam
as Q is Quantity d for demand and S for supply and what is p stand for
Alam
at equilibrium quantity demand is equal to quantity supply therefore Qd=Q's 200-p=5+2p 200-5=2p+p 195=3p p = 65 thus equilibrium price is equal to 65 and equilibrium quantity is equal to 195
Wani
2 p means price of product is 2
Wani
what is de law of demand
NAANMET Reply
All other things been equal, the law of states that the higher the price of a commodity the higher the quantity demanded. Vice versa
Nancy
the law of demand state that as the price of the goods increase the quantity demand decrease. considering all other factor to be constant.
Zaiveisho
Qd= 200 and Qs= -5+2p .how do you find the equilibrium price and quantity?
Margret Reply
what are the demands of this Question ... and how do i answer it ? ... Some occupations such as nursing are vital but are paid very little .Other such as financial advisor are not vital but are paid highly. How far the economic theory explain this situation?
Kudakwashe Reply
Is my answer correct or not?
BIZUNEH Reply
how do we derive an engel curve?
Dhurani Reply
what is sur plce price?
mran Reply

Get Jobilize Job Search Mobile App in your pocket Now!

Get it on Google Play Download on the App Store Now




Source:  OpenStax, Microeconomics. OpenStax CNX. Aug 03, 2014 Download for free at http://legacy.cnx.org/content/col11627/1.10
Google Play and the Google Play logo are trademarks of Google Inc.

Notification Switch

Would you like to follow the 'Microeconomics' conversation and receive update notifications?

Ask