PROTECTION

PROTECTION

     A policy of encouraging domestic industries by the imposition of tariffs on foreign products and payment of bounties to home industries is known as protection. An import duty aims at discouraging imports by making them dearer to the domestic consumers. The payment of bounty to home industry artificially stimulate exports and thus enables it to stand omits own feet in due course of time. After the end of napoleon war, i.e. in the 19^th century, protection appeared in U.S.A later on Germany, imposed custom duties on foreign products and developed her industries behind tariff walls. Great Britain which had taken an early star over ether countries in most branches of manufacture was the last to favor protection. The main arguments which are advanced to support the policy of protection are as follows:

1.      National Defense: Protection has been advocated on the ground that in times of war or any other emergency an entire dependence on foreign goods which are very essential for defense or consumption purposes is very dangerous. It is stated, therefore,, that a country must build up her own iron and steel industry and develop farming industry even if these involve an economic loss to the country.

2.      Preservation of certain class of population or certain occupation: the government of a country on political or social grounds may favor protection for preserving certain classes of people or certain occupations. For instance, the agrarian population is generally more submissive and loyal to the government than the industrial population. If government wishes to preserve this class of people, then it will levy heavy import duties on foreign agriculture raw material and thus encourage them to take interest in their farming industry.

3.      Diversification of Industries: Frederic list, a German economist, favors protection with a view to diversifying industries in a country. Under free trade, a country will specialize in the production of those commodities in which it has a relative price advantage over other countries. a country can specialize completely in one or few goods at the most. This means the country will put her eggs in one basket. If war breaks out or the export prices of the goods go down, then it will face severe hardship. It is, therefore, advocated that for bringing about a balanced economy in the country, protection should be given even to those industries which do not posses natural superiority.

4.      To assist new industries: Alexander Hamilton, Frederic list J.S Mill. Alfred Marshal, Tausig and other orthodox economists have clearly advocated protection for the industries which are still in their infancy. A newly-established industry, says list, is just like a newly-born baby. As the baby cannot grow up unless it is nursed and well protected, similarly an infant industry cannot face the blast of foreign competition unless it is given full protection till grows to its full structure. Protection to the new home industries is necessary because the industries in other countries have taken an early start and they are enjoying the economies of mass production, while the home infant industries are still in their early stages and are producing small output.

 The economists have justified protection for infant industries only. Once the industries grow up and reach maturity, protective tariffs should be removed. But in actual practice, it has been observed that infant industries never feel themselves grown up; if they grow up at all they devote their strength in fighting for bigger and longer protection.

Secondly, if protection is given to those industries which cannot stand on their own feet when left unprotected uses to less advantageous ones.

5. Protection to guard against dumping: If a foreign firm enjoying monopolistic or other advantages resorts to dumping with a view to capturing foreign markets, then the other countries must protect their industries by levying high protective duties on foreign goods. As selling of goods under cost (dumping) in other countries is temporary and sposmadic in nature. The anti-dumping duties should be imposed permanently on foreign products.

6. Keeping money at home: Protection is also advocated on the grossly fallacious argument of “keeping money at home” In the words of Robert Ingerson, “when we buy manufactured goods abroad, we get the goods and the foreigners get the money. When we buy the manufactured goods at home, we get both the goods and the money”. The criticism on this protection argument is that the foreign goods are purchased because these are cheaper and better then the home products. If we buy from the home market, this means we are buying in the bearer market. As consumers, we suffer a financial loss. We may buy the home products and suffer a loss for the sake of other considerations but not for simply keeping at home.

7. Protection of Revenue: Protection is also advocated on the ground that it raises revenue for the state. To this it is pointed out that if prohibitive high tariffs are imposed on the import of foreign goods, then they may not be imported at all and the government  would not able to collect the revenue at all On the other hand, if a moderate protecting industries.

8. Protection for Retaliation:  Some economists recommend that if a country uses high protection tariffs, the other countries which have trade relations with it should also impose custom duties on her products in relations from the study of the tariffs history, it has been observed that the retaliation tariffs have usually resulted in raising the tariffs still higher. It has been suggested, therefore, that commodity tariffs still should be imposed as a bluff but if the bluff does not make the other country to reduce the tariffs, then the countries should given them up because they can gain more by lowering tariffs, rather than by raising it.

9. Protection for conserving: Carey, Pattern, and Jevons have argued that protection is essential for preserving the natural resources of country. The unchecked trade often leads to exhaustion of mineral resources which are very vital for the development of the country.

10. Protection for maintaining high standard of living: it has been argued that a country with a high standard of living cannot successfully compete with a country having low standard of living. Because the country enjoying high standard of living has to pay high wages to its workers; which means high cost of production on the other hand, the country with low standard of living has to pay low wages to its employees which means low cost of production. The results of this disparity in money wages is that a country with high money wages is undersold by a country with low money wages. Hence, the former country must protect its industries by raising high tariff walls from the latter.

 The validity of this argument is questioned on the ground that if in a country, the money wages are high it is not necessary that the cost of production will also be high.

11. Protection for reducing unemployment:  it had been claimed that the use of tariffs discourages imports and raises their prices to the domestic consumers. This leads to diversion of demand for goods produced a home. The home industry in encourages and thus more employment is provided for the home population. This argument is contradicted on the ground that when tariffs are imposed on imports, the increase which has taken place in the employment in the protected industries will be offset by a decrease in the increase in the total employment of the country.