- The arguments against trade protection are evident from the impact that each form of protection has on the stakeholders. These can be summarised in the diagram below
Seven common arguments against protectionism
- Reduced choice
Protectionism reduces both the quantity and variety of goods/services available to customers
- Increased prices
Protectionism either reduces the supply of goods/services which leads to higher prices - or in the case of tariffs, directly leads to higher prices
- Increased costs
Manufacturers who rely on imported raw materials face higher costs of production. If protectionism is widespread it may generate inflation in the economy and/or lead to a loss of employment
- Retaliation
Foreign producers are hurt by protectionism and it is common for their governments to retaliate with their own measures which further harm free trade
- Reduction in export competitiveness
Protectionism reduces the need to be efficient or to innovate. Over time this leads to higher prices and worse quality products which will reduce export sales
- Resource misallocation
Global welfare is reduced as protectionism shifts production away from more efficient foreign producers to less efficient domestic producers
- Domestic inefficiency increases
With a reduced level of competition, domestic firms will be less productively efficient and will spend less on research, development and innovation