The Concept of Economic Protectionism - Assignment Example

According to the proponents of protectionism, it encourages the production of goods domestically and thereby can help the working class. However, critics think that it discourages competition. This will lead to driving down the prices. The government’s role in protectionism faces the controversial issue of balance between protectionism and free trade. Real-Life Examples The tariff on tires from China is an example of economic protectionism. The administration under the president stepped up the import duties to 35% in the first year. The tasks were levied on the tires of Chinese passengers and light weighted trucks.

The International Trade Commission was under the purview that Chinese exports of tires had rocked the domestic industry of the U.S. This has resulted in the displacement of jobs for thousands. The government of China reacted to the situation with serious opposition. They referred to it as a brutal act of economic protectionism. On 16th May 1956, the country agreed with Japan regarding importing Japanese textiles into the country. The year 1955 was a period when domestic manufacturers expressed concern about the imported materials from Japan.

They also filed several petitions in front of the tariff commission. The governments were under some communications regarding the agreement (Lauterpacht and Christopher, n.d., p. 168). The rationale of governments Protecting the infant industry is one of the rationales behind economic protectionism. The governments of developing countries rely on this rationale. They think that protecting the sunrise industries is one of their primary responsibilities. Sunrise industries need protection in the start-up years, which will help them capture some market shares.

Tariffs are levied to make foreign goods expensive artificially. The following rationale that can be identified is the protection of jobs. Some firms in the industry are inefficient yet have reached the maturity stage. People lose jobs because of these sunset industries. Structural unemployment will tend to grow more if some measures are not undertaken. Another vital rationale is revenue. The level of unemployment is high in developing countries, so it is difficult to raise revenue from taxes.

Therefore, developing countries impose tariffs on foreign goods to raise revenue. Some governments admit that measures of protectionism must be implemented or survive. Farmers must be protected to produce enough crops to feed the population. Two Protectionist Policies A tariff can be defined as a protectionist policy. A tariff is a tax on importing and exporting goods and services (Robert, 1997, p. 55). It is a typical kind of barrier to trade.

Another protectionist policy for the government is providing subsidies. A subsidy is usually a benefit given by the government to a group or individuals. The form of providing support can be cash or a tax reduction. The aim of giving grants is to remove some burden, which will be beneficial for the public. Conclusion The tariff acts raise the domestic prices in the tariff-imposing country. The amount of tax is equal to the price rise for small countries. But in large countries, the price rise is less than the amount of tariff (Buongiorno, 2003, p. 145). The tax for a small country does not influence the international price; hence, there will be no improvements in trade.

However, for large countries, the tariff is expected to bring improvement in terms of trade. A part of the tariff will reduce international prices for large countries. Subsidies can lead to government failure. Grants tend to distort the market prices. The result is a misallocation of resources. Export subsidies distort the free trade in goods and services. The inefficient firms get protection through donations. Direct income support through tax and benefit systems can have less distorting effects than subsidies.