A protectionist procedure is a rule that provides an inequitable benefit to a home industry against the global rivalry. Barriers to trade are often called “protection” because their stated reason is to protect or precede exacting industries or segments of an economy. From an economic viewpoint, though, the costs to the financial system of reducing its opportunities to trade approximately always compensate the benefits enjoyed by those who are protected. The common types of protectionism measures are tariffs, import quotas, and subsidies to home producers.
Protectionism is not appropriate for trading countries. The mainly prominent argument for tariffs, quotas and other barriers to trade is to protect jobs and incomes that otherwise would be at risk from foreign imports. There are also many disadvantages of protectionism some of them are discussed below.
- Reduction of the welfare of trading countries
Classical economist believed that protectionism can create problems for the countries who are involved in trading activities. In developing countries, the welfare effect of unilateral trade liberalization through consumption tends to be pro-poor.
- Lack of competitive services
The developments of domestic industries are harmful to protectionism. Because its development depends on a competition with foreign industries. Competitive cities have found niche products and markets in tradable goods and services, rather than in retail or public services.
- Creation of the monopoly market
Protectionism influences the import of foreign product. As a result, the local agencies create a monopoly market and takes extra advantages from customers. They occur because the cost per unit of output decreases with increasing scale, as fixed costs are spread over more units of output.
- Losses of resources
This process creates barriers to an exchange of internal resources. Hence the necessary product of an industry used in other unnecessary sectors.
- Creation of supply scarcity
This policy always is not suitable for a country. Many countries depend on another country for their necessary goods. Protectionism creates supply scarcity on that situation. If the scarce resource happens to be grain, for instance, individuals will not be able to attain their basic needs.
- Increasing cost
Some of the countries depend on their export industries on imports raw-material. Protectionism reduces export industries for increasing cost. Rising energy prices caused the cost of producing and transporting goods to rise.
- Hampering mutual relationship
Protectionism is not fair for creating a good relationship with other countries. As a result, it is considered as a hampering matter for creating a relationship between countries.
- Administrative trade policies
It consists of bureaucratic rules, laws, and regulations designed to create serious difficulties for an importer of goods or commodities into a particular nation.
- Exchange rate controls
It can be used to make a nation’s product cheaper abroad by lowering the value of its currency in the foreign exchange markets. The premise is that a nation can sell its currency in foreign exchange markets to the point where it loses value against other currencies.
- Antidumping policies
They are enacted by a nation in order to prevent the selling of goods in a foreign market at a price far below their production costs in order to gain a substantial share of that nation’s market.
At the end it is said that, though protectionism can be suitable for specific reason but it should not apply for all time in a country because the local consumers hampers for this. Protectionism is not bad for rising countries or developed countries. Some industries are premeditated and they are essential for the home market.