Most Important Objectives of Protectionism

The 14 Most Important Objectives of Protectionism are listed below:

(1) Infant Industry:

In the national interest, the infant industry argument is advanced by Alexander Hamilton, Frederick list and others. It asserts that a new industry having a potential comparative advantage may not get started in a country unless it is given temporary protection against foreign competition.

An established industry is normally much stronger than an infant one because of the advantageous position of the established industry. Hence, if the infant is to compete with such a powerful foreign competitor, it will be a competition between unequals and this would result in the ruin of the infant industry.

Therefore, if a new industry having a potential comparative advantage is not protected against the competition of an unequally powerful foreign industry, it will be delaying the country the chance to develop the industry for which it has sufficient potential. The intention is not to give protection for ever but only for a period to enable the new industry to overcome its teething troubles. The policy of protection has been well expressed as “Nurse the baby, protect the child and free the adult”.

(2) Diversification:

It is necessary to have a diversified industrial structure for an economy to be strong and reasonably self-sufficient. An economy that depends on a very limited number of industries is subject to many risks. It is, therefore, advised to develop a range of industries by according protection to those which require it.

(3) Improving the terms of Trade:

It is argued that the terms of trade can be improved through protection by imposing import duty or quota. If the foreign supply is inelastic, the terms of trade could be expected to improve. By protection through imposing tariff the country expects to obtain larger quantity of imports for a given amount of exports, or conversely, to part with a lesser quantity of exports for a given amount of imports.

(4) Improving Balance of Payments:

The developing countries may have the problem of foreign exchange shortage. By restricting imports, a country may try to improve its balance of payments position. In developing countries, generally there is a preference for foreign goods. Under such circumstances, it is necessary to control unnecessary imports lest the balance of payments position became critical.

(5) Anti-Dumping:

The dominating industrial country may dump the goods cheaply. The relief the consumers get will only be temporary. After ruining the domestic industry by dumping, the foreign firms will obtain monopoly powers and raise the prices and exploit the home market. Dumping, certainly, can do harm to the domestic industry. These factors point out the need to protect domestic industries against dumping. Thus, protection is an anti-dumping measure.

(6) Bargaining:

A country which imposed a tariff as a protective measure can use it as a means of bargaining to obtain from other countries lower duties on its exports.

(7) Employment:

Protection has been advocated also as a measure to stimulate domestic economy and expand employment opportunities. Restriction of imports will stimulate import competing industries and its spread effects will help the growth of other industries. These, naturally, create more employment opportunities.

(8) Natural Defence:

Depending on foreign countries for our defence requirements is rather foolish because factors like change in political relations can be serious damage to a country’s defence interests. Hence, it is advisable to develop industries of strategic importance by providing protection if they cannot survive without protection.

(9) Key Industries:

A country should develop its own key industries because the development of other industries and the economy depends a lot on the output of the key industries. If we do not have our own source of supply of key inputs, we will be placing ourselves at the mercy of the foreign supplies. The key industries should therefore be given protection if that is necessary for their growth and survival.

(10) Keeping Money at Home:

Abraham Lincoln says, “I do not know much about the tariff, but I know this much, when we buy manufactured goods abroad we get the goods and the foreigner gets money. When we buy the manufactured goods at home, we get both the goods and money”.

(11) The Pauper Labour:

If in the home country the wage level is substantially high compared to foreign countries the foreign producers will dominate the home market because the cheap labour will allow them to sell goods cheaper than the domestic goods and this will affect the interests, of the domestic labour.

(12) Size of the Home Market:

Protection will enlarge the market for agricultural products because agriculture derives large benefits not only directly from the protective duties revised on competitive farm products of foreign origin but also, indirectly from the increase in the purchasing power of the workers employed in industries similarly protected.

(13) Equalisation of Costs of Production:

Protection by imposing import duties equalise the costs of production between foreign and domestic products and to neutralise any advantage the foreigner may have over the domestic producers in terms of lower taxes, cheaper labour, or other costs.

(14) Strategic Trade Policy:

In developed countries, protection and government co-operation to certain high tech industries such as computers, telecommunications, semi-conductors etc. is required to gain comparative advantage in the high technology industries which are crucial to the future of the nation and to prevent market monopolisation.