Disadvantages/demerits of protectionism in an economy
- It leads to domestic inflation due to lack of competition
- Leads to poor quality local goods due to lack of competition.
- It promotes inefficiency in protected firms.
- It promotes monopolist tendency from protected domestic firms.
- Limited choices for consumers; domestic industries provide limited variety of goods and services.
- Lead malpractices such as smuggling, and hoarding since national may have high preference to imported goods.
- It is costly when government has to provide subsidies and tax holidays.
- It may frustrate inflows of foreign resource which may limit the level of foreign private investment in the country.
- Discourages specialization
- Stagnation of technological advancements: As domestic producers don’t need to worry about foreign competition, they have no incentive to innovate or spend resources on research and development (R &D) of new products.
- Economic isolation: It often leads to political and cultural isolation, which, in turn, leads to even more economic isolation.
- The danger of retaliation and “trade wars”: Continuous protectionist measures by a country might lead to retaliation of other countries and they might also put protectionist measures on the imports.
- Reduced export competitiveness:Continuous protection to domestic industries (such as subsidies) might make them inefficient in terms of cost and technology.
- Promotes income inequality; because rich that own the industries charge their customers highly
- Political Corruption.Protectionism leads to political corruption. The big and influential industrialists try to secure protection for their industries, even though they are quite strong to face foreign competition, by offering bribes to corrupt political leaders and government officials.
- Strained Foreign Relations.When a government restricts its imports by levying heavy import duties the other countries retaliate in the same manner. This produces unnecessary strain on their political relationship.
CATEGORIES Economics
TAGS Dr. Bbosa Science
