"A policy of encouraging domestic industries by the imposition of tariffs on
foreign products and payment of bounties to home industries is known as
An import duty aims at discouraging imports by making them dearer to
the domestic consumers. The payment of bounty to home Industry artificially
stimulates exports and thus enables it to stand on its own feet in due course of
time. After the end of Napoleon war i.e., in the19th century, protectionism
appeared in U S A. Later on Germany, imposed custom duties on foreign products
and developed her industries behind tariff walls. Great Britain which had taken
an early start over ether countries in most branches of manufacture was the last
to favor protectionism.
The main arguments which are
advanced to support the policy of protection are as follows:
(i) National Defense: Protectionism has been advocated on the ground that in
times of war or any other emergency an entire dependence on foreign goods which
are very essential for defense or consumption purposes is very dangerous. It is
stated, therefore, that a country must build up her own iron and steel Industry
and develop farming industry even if these involve an economic loss to the
(ii) Preservation of Certain Class of
Population or Certain Occupation: The government of a country on political or social grounds may
protectionism for preserving certain classes of people or certain occupations.
instance, the agrarian population is generally more submissive and loyal to the
government than the industrial population If government wishes to preserve this
class of people, then it will levy heavy import duties on foreign agricultural
raw material and thus encourage them to take interest in their farming industry.
(iii) Diversification of Industries: Frederic List, a German economist,
protection with a view to diversifying industries in a country. Under free
trade, a country will specialize in the production of those commodities in which
it has a relative price advantage over other countries. A country can specialize
completely in one or few goods at the most. This means the country will put all
her eggs m one basket, if war breaks out or the export prices of the goods go
down, then it will face severe hardship. It is. therefore, advocated that for
bringing about a balanced economy in the country, protection should be given
even to those industries which do not posses natural superiority.
(iv) To Assist New Industries: Alexander Hamilton, Frederic List, J.S. Mill.
Alfed Marshall, Taussing and other orthodox economists have clearly advocated
protection for the industries which are still in their infancy. A
newly established industry, says List, is just like a newly born baby. As the
baby cannot grow up unless it is nursed and well protected, similarly, an infant
industry cannot face the blast of foreign competition unless it is given full
protection till it grows to its full structure.
Protectionism to the new home
industries is necessary because the industries in other countries have taken an
early start and they are enjoying the economies of mass production, while the
home infant industries are still in their early stages and are producing small
The economists have justified protection for infant industries only. Once the
industries grow up and reach maturity, protective tariffs should be removed. But in actual practice, it has been observed that infant industries
never feel themselves grown up; if they grow up at all, they devote their
strength in fighting for bigger and longer protectionism.
Secondly, if protection is given to those industries which cannot stand on
their own feet when left unprotected, then the resources of the country are
diverted from more advantageous uses to less advantageous ones.
(v) Protection to Guard Against
Dumping: If a foreign firm enjoying
monopolistic or other advantages resorts to dumping with a view to capturing
foreign markets, then the other countries must protect their industries by
levying high protective duties on foreign goods. As selling of goods under cost
(dumping) in other countries is temporary and spasmodic in nature. The
anti-dumping duties should also be temporary. If dumping is permanent, then
higher tariffs should be imposed permanently on foreign products.
(vi) Keeping Money at Home. Protectionism is also advocated on the
grossly fallacious argument of "Keeping money at home". In the words of
"When we buy manufactured goods
abroad, we get the goods and the foreigners get the money. When we buy the
manufactured goods at home, we get both the goods and the money".
The criticism on this protection
argument is that the foreign goods are purchased because these are cheaper and
better than the home protects. If we buy from the home market, this means we are
buying in the dearer market. As consumers, we suffer a financial loss. We may
buy the home products and suffer a loss for the sake of other considerations but
not for simply keeping money at home.
(vii) Protection of Revenue: Protectionism is also advocated on the
ground that it raises revenue for the state. To this it is pointed out that if
prohibitive high tariffs are imposed on the import of foreign goods, then they
may not be imported at all and the government would not able to collect the
revenue at all. On the other hand, if a moderate protection duty is levied, then
it may serve both the purposes of collecting revenue and protecting industries.
(viii) Protection for Retaliation: Some economists recommend that if a
country uses high protection tariffs, the other countries which have trade
relations with it should also impose custom duties on her products in
retaliation. From the study of the tariff history, it has been observed that the
retaliatory tariffs have usually resulted in raising the tariffs still higher.
It has been suggested, therefore, that commodity tariffs should be imposed as a
bluff but if the bluff does not make the other country to reduce the tariffs,
then the countries should given them up because they can gain more by lowering
tariff rather than by raising it.
(ix) Protection for Conserving
National Resources: Carey, Pattern,
and Jevons have argued that production is essential for preserving the natural
resources of a country. The unchecked trade often leads to exhaustion of mineral
resources which are very vital for the development of the country.
(x) Production for Maintaining High Standard of
Living: It has
been argued that a country with a high standard of living cannot successfully
compete with a country having low standard of living. Because the country
enjoying high standard of living has to pay high wages to its workers; which
means high cost of production.
On the other hand, the country with
low standard of living has to pay low wages to its employees which means low
cost of production. The results of this disparity in money wages is that a
country with high money wages is undersold by a country with low money wages.
Hence, the former country must protect its industries by raising high tariff
walls from the latter.
The validity of this argument is
questioned on the ground that if in a country, the money wages are high, it is
not necessary that the cost of production will also be high.
(xi) Protection for Reducing Unemployment: It has been claimed that the use of
tariffs discourages imports and raises their prices to the domestic consumers.
This leads to diversion of demand for goods produced at home. The home industry
is encouraged and thus more employment is provided for the home population.
This argument is contradicted on the
ground that when tariffs are imposed on imports, the other countries may
retaliate by levying import duties on her exports. So, the increase which has
taken place in the employment in the protected industries will be offset by a
decrease in the employment of export industries. The result is that there may
not be any net increase in the total employment of the country.