Reasons or Rationale For Having Protectionist Policy/Measures

February 5th, 2009 Comments off
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Earlier article on the instruments used under the protectionist policy. So in the first place, what are some of the reasons to institute such harmful protectionist measures?

Some major reasons might include the following:

REDUCE DEFICIT IN THE BALANCE OF PAYMENT

  • The imposition of tariff will increase the prices of imported goods which deter the locals to buy them. This can help to reduce the country’s deficit in the balance of payment. Coupled with certain measures like export subsidies/incentives, this will help to increase the volume of exports

PROTECT INFANT AND LOCAL INDUSTRIES

  • “Infant” industries face many international establishd competitors. Hence the government need to impose tariff or quota to protect these infant industries. For example, Malaysia protects its local car “Proton Saga” by imposinhigh tax on imported cars

PREVENT DUMPING

  • Some times due to overproduction, etc some countries export their goods at very much lower price in the foreign markets. Literally, these countries are dumping their goods at extremely low prices. To protect the local products from such unscrupulous competition, high tariffs need to be imposed.

INCREASE DOMESTIC INCOME AND EMPLOYMENT

  • With the reduction of imports expenditure, this will then be diverted to stimulate the domestic economy by boosting income and employment.

NOT TO BE OVER-DEPENDENT ON TRADING PARTNERS

  • By imposing tariff to reduce imports, enable the locals not to be over-dependent on imports from its trading partners. This is especially useful when war or cyclical fluctuation on the trading partners will force painful adjustment on the importing countries.

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