Three arguments used to promote trade barriers are the national security argument, the infant-industry argument, and the dumping argument. Explain each of these arguments and evaluate whether each one has any flaws

Question

What will be an ideal response?

Answer 1

The national security argument is that countries must protect industries that produce defense equipment and armaments as well as those industries upon which the defense industries rely. The problem with this argument is that all industries contribute to national defense, though some do so more indirectly than others. For instance, the pillow industry can claim that it contributes to national defense because without good pillows, plant workers will be unable to sleep well and hence their efficiency will be lowered. The pillow industry therefore can make a claim for protection-which, incidentally, it did in the 1950s using the argument just described!

The infant-industry argument is that it is necessary to protect a new industry to enable it to grow into a mature industry that can compete in world markets. The problem with this argument is that if an industry can eventually compete, then its backers should be willing to fund it until that time. In addition, if the industry has benefits that spill over to other industries, then the more efficient government policy is to subsidize the industry rather than protect it from competition.

Finally, the dumping argument asserts that protection is needed to protect domestic industries from foreign dumping practices designed to eliminate competition. (Dumping is selling a good for a price that is less than its cost of production.) The problems with this argument are two-fold. First, it is extremely difficult to determine if a firm is dumping because determining the cost of production is difficult. Second, even if a firm is dumping, its success in establishing a monopoly is in doubt and its success in maintaining its global (!) monopoly is even more doubtful. Hence dumping to obtain a monopoly is likely a very uncommon practice.