In the absence of trade and therefore without facing any competition from foreign firms, domestic firms tend to become inefficient which causes rise in cost per unit of output and therefore higher prices of goods. Protectionism can also help build up new industries.
He proved that it could pay a country to import a good even though it could produce that good at a lower cost, if its cost is relatively lower in the production of some other good. The case for protection for the developing countries received a strong support from Argentine economist R.
But, free trade concept has not been abandoned since the case for free trade is strongest in the long run. Can protection deliver all the goods that a nation needs?
He has imposed stiff tariffs — essentially taxes on foreign goods imported in this country — and threatens to impose more. A time period of 5 to 10 years may be required by an industry to achieve maturity or self-sufficiency.
We might think that we need certain industries — such as food production or steel-making — just in case things go wrong in the wider world. Gains in Output and Well-being from Specialisation: The case for free trade is fundamentally based on the gain in output and well-being a country obtains from specialising in the production of those goods in which it is relatively more efficient and therefore export a part of them and in exchange gets those goods from other countries in production of which they are comparatively more efficient.
Nationalism: First argument for protection has been that nationalistic feeling or patriotism requires that people of a country should buy products of their domestic industries rather than foreign products.
By restricting trade, a country need not spend money to buy imported articles. Thus, these large firms reap pure profits over the long run during which new firms may not dare enough to compete with these established large firms.
The rates of these tariffs are not so high as to completely prohibit their imports into a country.