Protectionism. What do you consider to be the main circumstances in the field of international trade when protectionism might be justified?

Authors Avatar

Business in EUROPE

Assignment 2

Protectionism

  1. What do you consider to be the main circumstances in the field of international trade when protectionism might be justified?

There are three major powers that dominate trade today; they are Japan, North America and Europe. USA has been identified as one example of economic and political union and has been a leader of world trade investment for some time. The success of US trade is attributed to the fact it has been able to operate in such a large free trade area and the size of the companies has given them greater scope to attain economies of scale. Japan has become more powerful and improved its position in the world market in recent years and has started to encroach on the US’s dominance. “One of the important motivations, for developing the Single European market has been to emulate the USA’s high degree of integration in an attempt to give firms freer access to a wider market… and strengthen the position of Europe over other leading trade blocs.”(1)

The EU became a threat to America and Japan, as they saw it and they threatened to use protection against European imports, as greater internal efficiency would lead to more effective competition.

These global oligopolies consist of a number of large companies who dominate the market, this does not give much scope for newly developing countries to achieve a lot of ground when it comes to trade as they are unable to compete with big, well established firms or countries.

These small newly establishing countries need to be protected from the established foreign competition of whatever country due to new technology that is used in the more economically developed countries. The newly emerging industries are the type of industries that protectionism was designed for; it gives them a chance to get started before they have to face the full force of foreign competition. In the beginning these industries may not have secured a stable retail market, their overheads will be high until they are in full production and it gives them time to become operationally efficient and reduce costs. I would consider this the main reason for use of protectionism within international trade not in the way America and Japan wanted to use it to stop another big competitor form entering the field.

There are drawbacks to using protectionism to shield third world industries and that is they don’t really know what the competition is actually like until the protection is taken way and they may find that they are unable to cope with it. On the other hand they may try and demand that they remain under protectionism even when they are able to survive on their own. It gives a country a false sense of security that they may not be able to survive without it.

Join now!

There are other situations when protectionism is justified “Dumping” refers to goods being sold at a price below the cost of production or charging different prices in different markets without a change in the actual cost of production. This latter use suggests anti-competitive behaviour and to charge different prices in different markets is extremely unfair. There are reasons why a standard price cannot be achieved on a global scale:

∙ “competitive conditions on a market by market basis, which often makes local adaptation a prerequisite of competitive success. Different costs of factor inputs, different levels of local competition ...

This is a preview of the whole essay