Question

Economic theory suggests that the "unfair competition" argument against unrestricted international trade is generally not valid, that this argument is likely to be used by domestic producers even if imports benefit the domestic economy as a whole.

True

False

Answer 1

True

Economic theory suggests that unfair competition argument against free trade is generally not valid, thus this argument is used by domestic producers even if imports benefit the domestic economy as a whole is an infant industry argument. When a country is in the initial industrialization phase, domestic producers are not competent to face competition from outside producers in the advent of globalization.

Liberalisation enables unfair competition for these infant domestic producers to compete with existing producers which have the advantage of economies of scale and the argument is an economic rationale for trade protection. Producers in developing countries try to justify putting tariffs on imports in order to develop new industries.