Advantages & Disadvantages of Protectionism

Arguments For

  • Protects domestic firms and employment
    • Aggregate demand of an economy will increase with more restrictions against import
  • Protect against dumping
    • Selling products/goods overseas for a lower price than production costs

Tariffs

Arguments Against

  • Multiplier effect on different countries (trading partners)
    • If one country reduces imports, it may lead to a reduction of exports in another country à world output will certainly decrease
  • Inefficiency of resource allocation
    • Domestic firms may rely heavily on the protectionist measures and be efficient with their resources

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