In battlefield injured or weak soldiers are often kept behind so as to protect them from rival soldiers and this act of putting weak or injured soldiers at the back of strong soldiers can be termed as protectionism. Protectionism is the word used in the context of international trade, it refers to those actions of government by which government, in order to promote local or domestic companies, put restrictions on foreign companies coming into the country by putting various measures such as trade quota, tariffs, and other such restrictive measures. In order to understand more about this term, one should know the advantages and disadvantages of protectionism –
Advantages of Protectionism
Boost to Domestic Companies
The biggest advantage of it is that it gives a boost to domestic company’s sales and profits because once the government has protectionism policy than there is no competition from foreign or multinational companies and all the lost sales of multinational companies go to domestic companies. In simple words, in short-term domestic companies enjoy higher sales and hence higher profit.
Chance for new Entrepreneurs or Companies
Another advantage of protectionism is that it gives chance to new entrepreneurs or companies to grow and survive in the market because if there are multinational companies operating in a country than they enjoy the low cost of production due to their big size which in turn enables them to sell products at less price and a new company cannot compete with big multinational due to price difference and hence in turn they tend to go out of business in a short period of time. In simple words, protectionism gives a new life to budding entrepreneurs and companies to capture the market share without worrying about competition from multinational companies.
Jobs and Prosperity of Citizens
It also helps in creating jobs because since all demand of country has to be produced by the country itself which leads to emergence of new companies who employs local people for production of goods and hence due to those jobs it brings money into the pockets of people which ultimately brings prosperity in the lives of the citizens of the country.
Disadvantages of Protectionism
Consumers pay more Price
The biggest disadvantage of protectionism is that consumers are left with no choice as they have to buy goods from local companies only as there is no competition from foreign companies. Domestic companies due to lack of competition take consumers for granted and charge a higher price from them which would not have been the case if there was free competition. In simple words as far consumers are concerned protectionism is a bad idea as they have to pay more money for goods than they would have paid in free competition.
Non Availability of Goods
Another major drawback of protectionism is that domestic companies may not produce all types of goods which is the case with multinational companies which have a solution for every problem in the form of good or service. Hence in simple words, non-availability of all goods which other people are enjoying in other countries is another reason why the government should think ten times before going for protectionism.
Other Countries Retaliation
International trade is not a family function where if you do something and in return they will not do anything rather it is a battlefield where one country’s actions have equal and opposite reaction and hence if country decides in favor of protectionism than it will have to face consequences as other countries too will impose ban on products of that country which has adopted protectionism and it will have adverse effect on the exports of the country.
As one can see from the above that protectionism has pros as well as cons and any government thinking of adopting this measure should carefully read above points and then take the decision whether to go for protectionism or not because this decision has short term as well as long-term repercussions.