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Trade Protectionism

  • Date Submitted: 07/24/2011 07:42 AM
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Trade Protectionism Report
Trade protectionism is the measure adopted by countries to restrict international trade to prevent free movement of goods and services between countries. Basically, protectionism means sheltering local industries from foreign competition through imposition of tariffs, trade barriers and other protectionist measures.
Why does government need to protect domestic industries?
1. Without protection, uprising industries will not survive competition from abroad. If protection against foreign competition is provided during the early stages, young industries can develop and will be able to compete on more equal terms with its competitors.
Case study
In the 1980s, Prime Minister Mahathir Mohamad launched the national automobile company, Proton. Proton would be protected by massive subsidies, in order to help it attain the same economies of scale and other advantages enjoyed by established automobile exporters.
From the very start, Proton cars were sold at a loss. The first car, the Saga, enjoyed massive market penetration, and future models of Proton cars continued to dominate the Malaysian market. With almost literally rock-bottom prices for Proton-produced cars, only the very rich could afford to buy imported models.
It is assumed that protectionism can be beneficial in the short run by keeping firms in business long enough to achieve similar advantages enjoyed by those of more established competitors. However, the economies of scale Proton sought to achieve under protectionism were never attained.
2. The government needs to implement protection of goods to fight against dumping. ‘Dumping’ occurs when goods are sold in a foreign market at a price below cost or below that sold at the home market. For example, a monopolist of steel in China used the high profits earned in China to subsidize exports to USA, leading to lower price of steel sold in US market. This threatens the market share of steel producers in the US when they cannot...


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