Syllabus Topic
HSC Topic One - The Global Economy
Protection
reasons for protection - infant industry argument, domestic employment, dumping, defence
In today’s interconnected world, international trade is vital for economic growth. However, many countries use protectionist measures like tariffs, subsidies, and quotas to shield domestic industries from foreign competition. There are several reasons why governments choose protectionism, including supporting infant industries, safeguarding domestic employment, addressing anti-dumping concerns, and ensuring national security.
Infant Industry Argument
A key reason for protectionism is to support infant industries—emerging sectors that lack the competitiveness of established global players. For instance, India implemented The Faster Adoption and Manufacturing of Hybrid and Electric Vehicles (FAME) scheme in 2015 as a measure build its own electric vehicle (EV) industry, allowing domestic companies like Tata Motors to develop and innovate. They also implemented protectionist policies to reduce foreign competition. However, these protections are beginning to be reduced, as the industry matures and becomes globally competitive.
Domestic Employment
Protectionism helps safeguard domestic jobs by preventing foreign competition from flooding the market with cheaper goods. A key example of this is the U.S. imposition of tariffs on Chinese solar panels in 2024, aimed at protecting local manufacturers. The policy helped mitigate job losses in U.S. factories that could not compete with low-cost imports, especially in labour-intensive sectors like textiles and manufacturing. However, while these measures can protect jobs, they may also raise prices for consumers, reducing their purchasing power.
Anti-Dumping Measures
Dumping occurs when countries sell goods below production cost, often due to government subsidies. In 2022, the European Commission imposed anti-dumping tariffs on Chinese iron or steel fasteners. These actions aimed to counter the harmful effects of cheap, subsidised imports that could undermine local businesses. Anti-dumping measures ensure fair competition and prevent market distortions, although they may also lead to trade tensions.
National Defence Considerations
National security concerns are another key reason for protectionism. Countries may restrict imports in sectors critical to defence or infrastructure to avoid dependency on foreign suppliers. In recent years, countries such as the U.S. implemented restrictions on Chinese telecommunications company, Huawei, to limit reliance on foreign-made technology for their 5G networks and national security purposes. In 2018, Australia banned Huawei from building its 5G network for similar reasons.
Conclusion
Protectionist policies can offer short-term benefits, such as promoting economic growth, protecting jobs, and ensuring national security. However, these policies can also result in higher consumer prices, inefficiencies, and trade disputes. In 2025, countries continue to navigate these complexities, seeking a balance between protecting domestic industries and engaging in global trade. Ultimately, the challenge lies in managing the trade-offs between economic benefits and risks in an increasingly globalised world.
Additional Sources
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