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Trade protection is the deliberate attempt to limit imports or promote exports by putting up barriers to trade. Despite the arguments in favour of free trade and increasing trade openness, protectionism is still widely practiced.
The main arguments for protection are:
Barriers to trade can be used to protect sunrise industries, also known as infant industries, such as those involving new technologies. This gives new firms the chance to develop, grow, and become globally competitive.
Protection of domestic industries may allow they to develop a
comparative advantage. For
example, domestic firms may expand when protected from competition and
benefit from economies of scale. As firms grow they may invest in real
and human capital and develop new capabilities and skills. Once these
skills and capabilities are developed there is less need for trade
protection, and barriers may be eventually removed.
Protection of domestic industries may allow they to develop a comparative advantage. For example, domestic firms may expand when protected from competition and benefit from economies of scale. As firms grow they may invest in real and human capital and develop new capabilities and skills. Once these skills and capabilities are developed there is less need for trade protection, and barriers may be eventually removed.
At the other end of scale are sunset industries, also known as declining industries, which might need some support to enable them to decline slowly, and avoid some of the negative effects of such decline. For the UK, each generation throws up its own declining industries, such as ship building in the 1950s, car production in the 1970s, and steel production in the 1990s.
Barriers may also be erected to protect strategic industries, such as energy, water, steel, armaments, and food. The implicit aim of the EUs Common Agricultural Policy is to create food security for Europe by protecting its agricultural sector.
Non-renewable resources, including oil, are regarded as a special case where the normal rules of free trade are often abandoned. For countries aiming to rely on oil exports lasting into the long term, such as the oil-rich Middle Eastern economies, limiting output in the short term through production quotas is one method employed to conserve resources.
Barriers may be erected to deter unfair competition, such as dumping by foreign firms at prices below cost.
Protecting an industry may, in the short run, protect jobs, though in the long run it is unlikely that jobs can be protected indefinitely.
Some countries may protect themselves from trade to help limit damage to their environment, such as that arising from CO2 emissions caused by increased production and transportation.
Many economists point to the dangers of over-specialisation, which might occur as a result of taking the theory of comparative advantage to its extreme. Retaining some self-sufficiency is seen as a sensible economic strategy given the risks of global downturns, and an over-reliance on international trade.
In addition to the economic arguments for protection, some protection may be for political reasons.
For methods of protection, see tariffs and quotas
See: US-China trade dispute
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