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Consider whether protection should be based on an economic basis only or whether other aspects of our society should be considered to be more important.Use suitable graphs and statistics to explain and support your arguments.

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Introduction

Economics Essay: Protectionism vs. Free Trade "Most arguments for protection are based on political, defence, sectional and social consideration rather than on an economic basis." Consider whether protection should be based on an economic basis only or whether other aspects of our society should be considered to be more important. Use suitable graphs and statistics to explain and support your arguments. The argument for and against the protection of domestic industrial sectors, known as protectionism, the restriction of international trade by governments, namely to protect incomes of national/domestic producers, but many other reasons such as the protection of infant industry or military conflict, through the implementation of trade barriers such as quotas, tariffs, embargos, subsidies and VER's (Voluntary Export Restraints); has become extremely pertinent to the Australian economy over the past year, mostly as a result of the proposed "Free Trade Agreement" with the United States. "Free Trade" is the practice of trade between countries where there are very few trade limitations and there is little government intervention. ...read more.

Middle

The effect of a tariff can be seen graphically in the graph shown below: The domestic demand and supply curve, DD and SS, intersect at E to give equilibrium price of 0P and quantity 0Q. The world price for the product is at OW. At the world price OW, domestic firms are only willing to supply 0Q, but consumers demand 0Q2. The shortfall in relation to domestic demand s made up by imports of Q1Q2. If the government imposes a tariff equivalent to OWOT, domestic supply will extend from 0Q1 to 1 Q3, but domestic demand will contract from0Q2 to 0Q4. Imports will contract from Q1Q2 to Q3Q4. The Infant Industry argument is also very strong in countries that have applied protectionist measures. A country may want to develop a certain domestic industry that it believes in the long run will improve the country's trade or economic position, such information technology sector etc. ...read more.

Conclusion

Also, protectionist measures within a country will nearly always be met with retaliatory barriers from foreign governments, restricting the flow of goods from the domestic market overseas, causing a decrease in export dollars coming into the country, this may also close out markets for investment and entrepreneurship which hinders world growth. On top of all these reasons for not wanting a protectionist based trading sector is the fact that protectionism is very expensive to the consumer and to the tax payer, subject to what type of protection is in place. Overall, protection, when used for the right purposes, such as the protection of infant industry, and protection against obvious dumping (The export of products at a price below their cost of production), protection is beneficial, but when it is used to protect and obviously cost ineffective under-producing sector such as the French Agriculture sector it is a hindrance to growth and fair trade from legitimate exporters who would very dearly appreciate the extra export dollars. ...read more.

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