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Word Count: 775
Protection is any attempt by the government to give the domestic producer an artificial advantage over a foreign producer The government can protect its industries in three ways restricting the quantity of imports quotas lowering the price for domestic producers subsidy or increasing the price of imports tariffs Australia now stands at the crossroads of two paths Should we continue as we are reducing tariffs which since the mid 80s has seen Australias ratio of exports and imports to Gross Domestic Product GDP each rise from around 15 to 20 On the other hand should we look after what industry we still have and protect the inefficient ones Australia had been one of the largest advocates for protectionism up until the 70s when the level of protection began to fall and by 2000 is projected that the average rate of protection would fall to 5 This is in line with most other developed countries ARGUMENTS FOR PROTECTION Infant industries will be killed off by the market unless they are given protection and allowed to grow up and produce economies of scale Dumping by overseas firms to flood the market and sell at below production costs may destroy domestic producers if they are unable to resume supply Diversification of production protects economy from fluctuations of one industry Diversification helps to spread the risk Increased employment by protecting an industry which otherwise would not exist Favourable Current Account Deficit CAD by reducing imports via tariffs ARGUMENTS AGAINST PROTECTION Inflation increases because reduced competition production costs and import costs increase wage costs increase Causes net unemployment by causing inflation hitting exports inefficient resource use reducing real incomes and spending power in the economy Decreased growth by inefficient resource use decreased aggregate demand AD reducing incentives Through trade liberalization and a reduction in protection some industries may be hurt as was the case with the car and textiles
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