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International Trade and Protectionism

The arguments for and against protectionism

  • 3 things to know
  • All three components

Overview

Infant industry argument, sunset industry argument and employment argument for protection.

What you need to know

Answer each one before you reveal it.

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Evaluation

What is the infant industry argument?

Evaluation

What is the objection to the employment argument for protection?

Evaluation

What is the current account argument for protection?

Questions from this subtopic

Each one with the model answer underneath.

  1. 1

    What is protectionism?

    Model answer

    Protectionism is the use of government measures to restrict imports and shelter domestic producers from foreign competition. Tariffs, quotas, subsidies and regulatory barriers are the main instruments.

  2. 2

    What is the infant industry argument?

    Model answer

    The infant industry argument holds that a new domestic industry cannot yet match established foreign producers on cost. Temporary protection allows it to reach efficient scale. The protection is meant to be removed once the industry can compete.

  3. 3

    What is the objection to the infant industry argument?

    Model answer

    Identifying which industry will eventually succeed requires knowledge a government rarely has. Protection also tends to persist long after the industry has matured, because the beneficiaries lobby to keep it.

  4. 4

    What is the sunset industry argument?

    Model answer

    The sunset industry argument holds that a declining industry should be protected temporarily so that its contraction is gradual. A managed decline spreads the adjustment cost over time rather than concentrating it in one closure.

  5. 5

    What is the employment argument for protection?

    Model answer

    Protection preserves jobs in industries exposed to import competition. Supporters point to the regional concentration of those jobs and the social cost of losing them together.

  6. 6

    What is the objection to the employment argument?

    Model answer

    Jobs preserved in the protected industry are paid for by higher prices across the whole economy, and the cost per job saved is often very large. Employment also falls in exporting industries when partners retaliate.

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