Protection Trade or Protectionism
Protection is that policy of the government under which a number of restrictions are imposed on import with a view of giving protection to home industries. Two types of instruments are used to protect domestic industries. They are tariff barriers and non-tariff barriers. In the tariff barriers government imposes high custom duties on imported goods to make them relatively more expensive than domestic products. Similarly, under the non-tariff barriers, government controls import by giving subsidy in domestic products by applying quota system exchange control, etc.
1. Development of Infant Industries:
Infant industries are not strong to compete with the long-established foreign industries. Therefore, infant industries in a country must be given protection against foreign competition.
2. Development of basic and large scale industries:
In the protection trade policy, imports of foreign goods are controlled by the government and domestic producers are compelled to produce those goods. As a result, it helps to develop basic and large scale industries.
3. Proper utilization of resources:
Domestic producers should produce most of the necessary goods in this trade policy. Thus, existing resources are fully and efficiently utilized to fulfill the demand of domestic countries.
4. Creates employment opportunities:
When industries are granted protection, they expand and progress. Skilled, semi-skilled, and unskilled labor obtain additional opportunities for gainful employment. This policy creates opportunities for employment.
5. Self sufficiency:
Due to the protection trade policy, producers of the countries produce almost all types of goods and services in the nation. It increases self sufficiency and the country may become economically independent.
Disadvantages of Protectionism:
1. Creation of monopolies:
Due to the protection trade, there is not any kind of competition in the domestic market. As a result, it consolidates the home industries to make monopoly power in the economy.
2. Loss to consumers:
Because of protection policy, the price of domestic goods is high. There is total absence of foreign goods in the market. The consumers have to pay higher prices for such goods.
3. Decrease in competitive capacity:
Under this policy, the protected industry becomes dependent upon the government and its policy. They start taking things easy and do not develop their competitive capacity in terms of price, quality, and quantity with other countries.
4. High inequality:
Under this policy, special facilities are provided only to the rich people who are the producers. They become richer because of high profit. Poor or consumers become poorer because of high profit.
5. Reduces foreign relation:
Protection may reduce relation between various countries in international market. When a country reduces its import through policy of protection, another country may also use the policy for its betterment. As a result, it does not make good relations among the countries.