Demerits (Disadvantages/ Arguments against) Protectionism
- It leads to technological unemployment. This is true if the protected industries use capital intensive techniques of production which in the long run replaces labour hence technological unemployment. This is true especially with foreign investors who prefer to use capital intensive techniques of production.
- It increases economic dependence of the country. This is true if protected industries continue to import raw materials and spare parts from foreign countries. This increases the production costs hence high prices for goods and services.
- It promotes profit repatriation. This is true if the protected industries are owned by foreign investors and this promotes capital flight hence limited capital accumulation in the economy.
- 4. Protectionism in form of regional integration leads to trade diversion. Countries within the integrated region may end up buying raw materials from within the region at high costs instead of importing them from nonmember countries at cheaper This increases the costs of production.
- It reduces the welfare of the local consumers. This is protectionism reduces the choice of consumers and it leads to the production of poor quality and expensive goods and services as compared to the imported commodities. This leads to poor standards of living.
- It leads to balance of payment problems in the country. This is due to increased importation of expensive factor inputs in form of raw materials, intermediate goods and expatriates.
- It increases government expenditure. This is because it is costly for the government to implement and enforce the protectionism policy. This makes it difficult for the government to meet her recurrent and development-expenditures.
- It leads to the emergency of local monopolies. The protected domestic industries end up becoming monopolies. They restrict output and charge high prices hence exploiting the consumers.
- It encourages retaliation and tariff wars among trading partners. This is because protectionism is used as a beggar-my-neighbor policy whereby a country uses it to improve on its economic conditions at the expense of its trading partners.
- It promotes inefficiency in production. Local producers are sheltered from foreign competition and this leads to the production of poor quality products
CATEGORIES Economics
TAGS Dr. Bbosa Science
