Consider the Extent to which Protectionism Could Solve the Problems of Countries Tempted to use such Policies
Protectionist methods can be used by countries to solve their own economic problems in certain industries. Countries that are tempted to use such policies are likely to be having problems with exporting goods and services or problems with inefficiency in some industries. These sorts of methods are used to eliminate competition from foreign companies trying to sell their goods in that country. Tariffs and quotas are the most common form of a trade barrier and these barriers reduce the amount of trade between countries.
Protectionism eliminates competition. If a country manufactures and transports certain goods at a very high rate and another at a very low rate, consumers in the first country are obviously going to buy goods imported from the other country as these goods are cheaper. There will be a high demand for the imported goods because people always want the cheaper goods. There will be little or no demand for home-made products because it is too expensive. This will lead to the home companies going bust because it would not sell any of its products. The reasons for the extensive costs may be due to that country’s tax system or expensive related goods needed as well too manufacture those goods. Whatever the case, the company going bust leads to many job losses and unemployment. This has a knock-on effect to other local businesses. This is because the unemployed would have a lower disposable income as they have a low source of income in the form of benefits if that country has unemployment benefits. Local businesses have fewer goods demanded so they lose income and profits leading to more job losses and unemployment. The multiplier effect continues on and on just because another country produces goods at a cheaper cost and can sell as much as they want in the other country because there is nothing to stop them. That’s when the other country imposes protectionist methods. So for example the United Kingdom produces cheap steel compared to the USA. This may be because it is easier to manufacture it in the United Kingdom, for example, if the raw materials are right there and cheap to extract. In the USA aw materials may have to be imported so American steel would be more expensive for Americans to buy, so they would opt for British steel. In the long-run this would mean that the American steel industry would suffer and become non-existent, causing unemployment. To prevent this from occurring, the American government can then impose tariff on British steel to increase the price of it. This would make the price of British steel higher than American steel, so the demand for American steel increases and the demand for British steel decreases. This boosts the American steel industry and the American economy, but weakens the British steel industry as America is the world’s largest economy. So basically, the Americans have used protectionism to eliminate foreign competition which can be very damaging to an economy.