Briefly explain the main argument in favour of consumer protection?
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Answer:
To safeguard domestic employment - as protectionist polices reduce import penetration. In terms of the identity AD = C + I + G + (X-M), the lower is M, the greater will be aggregate demand and thus the higher the level of domestic output and employment.
To correct balance of payments disequilibrium - as demand for imports is dampened and exports promoted. This makes the domestic output appear to be more competitive.
To prevent labour exploitation in developing economies - this is really a moral argument as it rests on making imports more accurately reflect their true cost of production. However, it might also reduce imports from some of the poorest economies in the world.
To prevent dumping - which is where economies sell goods in overseas markets at a price below the cost of production. Domestic consumers pay more than those buying overseas. Such low prices are part of a policy to destroy rivals in export markets.
To safeguard infant industries - as shifts in comparative advantages arise, so some countries become able to enter new markets. Their fledgling industry needs some protection from the power of already established competitors.
To enable a developing country to diversify - this is similar to the infant industries argument. Many developing countries are heavily dependent on exports of primary commodities. This can leave them very exposed to changes in international commodity prices. If they want to diversify and develop new export revenue streams, they may need to protect these new industries from full exposure to international competition for a while.
Source of government revenue - where protectionism takes the form of a tariff, apart from reducing demand for imports via the impact of a higher price, this will also raise revenue for the government, like any other tax. The revenue raising function will be most successful where the demand for imports is price inelastic.
Strategic arguments - a particular product or industry might be of strategic importance to a country, e.g. agriculture or coal, and protectionism may be justified on the grounds that it is keeping alive an industry which plays a vital part in the economy, perhaps because of social, political or military reasons.
Explanation:
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