Question

List five arguments often given to support trade restrictions. How do economists respond to these arguments?

Answer 1

Five arguments that are often given to support trade restrictions are as follows.

1. Job arguments

2. National security

3. Infant industry

4. Unfair competition

5. Protection as a bargaining chip argument

The first arguments is job perseverance as many say that trade will lead to job loss in the domestic country. But economics respond by saying that trade will not lead to increase in unemployment but will increase employment more than it used to be with the specialization of the products that will be exported from the domestic nation.

Some argue that trade will lead to barriers for the national security and the nation will be dependent on other nations for goods which will lead to difficulty during the times of war and other crisis. But economists argue that this is a very narrow Outlook as this will lead to low level of competition. The more the competition in the market the higher the level of welfare of the nation.

Then comes the point of infant industry who argue that as they are beginners in the industry this will lead them to fail in the market as there are big competitors in the market. But economists argue at this point by saying that market cannot be controlled and compensated for the beginner firms. They argue that even though there is an absolute disadvantage but there will be a comparative advantage in the market. There may also be a substitute product available.

Some say that there is unfair competition in the market which will lead to loss for the domestic firm. But economists argue that if a firm is unfair, it will eventually not work out for them in the form of public perception and the market will adjust itself.

The last point is protection as a bargaining chip argument in which corporations argue that the government imposes a tariff to manipulate the market and impose additional costs on the producers. Economists argue that these threads are not something of a concern for the government as otherwise they will incur losses in the long run.