Discuss the pros and cons of Protectionism on the domestic manufacturers.
Protectionism is the economic policy which protected the domestic producers against the cheaper or high-quality import from other countries. The policy of restricting imports from other countries can be done through various methods.
Protectionist methods employed, such as:
- Tariffs on imported goods,
- Import quotas,
- Subsidies to producers,
- Variety of government regulations which can restrict imports on the basis of quality, pollution regulation and adverse health impacts etc.
Positive Impact on the domestic manufacturers:
- Protecting domestic players: Various domestic industries has suffered material injury due to the dumping from China in the recent past. Various means such as import tariffs shield the producers, businesses, and workers of the import-competing sector in the country from foreign competitors;
- Fair competition demands protection in some conditions: For example in case of import duties on agricultural produce the farmers in India are protected against the highly subsidized farmers of the USA and the Europe.
- Protects from the currency outflow: this can be of critical importance in such cases where there is a balance of payment crisis.
- Development of critical industry: For example recently import tariffs were produced for the solar panel and semi-conductor manufacturers to allow the industry to develop.
- Reducing imports: India's exports to China during the April-September 2021 period were worth USD 12.26 billion while imports aggregated at USD 42.33 billion, leaving a trade deficit of USD 30.07 billion. In such a scenario, protectionist measures can be helpful.
Negative impact of the Import tariffs:
- Breeds inefficiency: A reflexive resort to the import tariffs, especially if the domestic applicant is a significantly large and relatively resilient manufacturer of the product, risks skewing the market dynamics in the Indian company’s favour. Over-protective economic policies before 1992 bred inefficiency in India.
- Higher prices for intermediate producers: downstream industries, intermediate goods, and consumers likely to face the consequences of reduced competition on final prices.
- Protectionism has not been effective in reducing imports: efforts to narrow the sizeable trade deficit with China by targeted recourse to the levy have made little headway in addressing the widening gap as imports have continued to largely outpace India’s exports.
In the recent times, due to aggressive exports by China has led to a trade war between China and the United states of America. Further countries like India and other developing economies too have grown wary of the Chinese imports. This has led ineffective open market negotiations at WTO and adoption of various anti-dumping measures across the world. This restricts global growth in the long term.
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