Arguments for Protection Resisted by Economists

From International Political Economy
Jump to navigationJump to search

Cheap Foreign Labor Argument One oft-heard argument for protection says that poorer countries have an unfair comparative advantage in the production of certain goods because of their abundance of cheap labor. Economists stress the need to examine the relative costs of the factors of production, and not the absolute costs. If, for instance, workers in the United States produce a good more efficiently, albiet with much higher wages, the price per good may be the same as the price per good in a poor country with less efficient forms of production and cheap labor. Only in the case that labor is cheap and the production is efficient does the other country have a comparative advantage. Therefore, it is important to look at all aspects of a country’s ability to produce before assuming a comparative advantage solely on the basis of an abundance of cheap labor.

Infant Industry Argument Some industries argue that their industry should be temporarily protected from foreign competition in order to become competitive. The main issue economists take with this argument is the fact that an entire industry sheltered from competition has less incentive to become competitive. Additionally, the government faces the challenge of deciding which industries deserve or necessitate protection, and this could lead to unwise policy decisions.

Grieco, Joseph M. and G. John Ikenberry. State Power and World Markets. W. W. Norton and Company: London, 2003.