Economics - Free Trade vs Protectionism

Topics: International trade, Economics, Free trade Pages: 3 (933 words) Published: September 29, 2012
b.    If free trade is important, why do some countries practise protectionism? [13]

In spite of the importance of free trade, some countries practice protectionism, imposing trade barriers on foreign goods and services in order to protect their domestic industries from foreign competition, in order to protect infant industries and achieve national objectives such as low unemployment and a stable domestic economy. This essay will explain these reasons that drive countries to practice protectionism. First off, though free trade is important in ensuring a wide variety of goods and services for consumption, other countries practice protectionism in order to protect infant industries. This is done during the early phases of their existence to protect them from established foreign industries so as to help them expand their output to reap internal economies of scale (EOS). This involves implementing short-term trade restrictions during the initial stage of operation until the infant industries become able to compete with foreign industries by effectively using its comparative advantage and charging competitive prices. One example is the screen quota imposed in the Korean movie industry to protect the Korean domestic movie industry from foreign films such as Hollywood movies. This method of protectionism enabled the domestic movie industry in Korea to mature and develop, allowing Korean movies to thrive and account for more than 50% of its domestic market in 2004. Hence, countries practice protectionism in order to protect infant industries. When the infant industries are already mature and able to compete with foreign industries, the protection methods may be lowered to allow a wider variety of goods and services for consumption. Free trade might be important but, without protectionism, local industries may be edged out by foreign producers due to the competitiveness of exports. This will then reduce the quantity demanded for their country’s export and, to reduce...
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