33.1 Free Trade or Protection? LO 1, 2
The case for free trade is that world output of all products can be
higher under free trade than when protectionism restricts regional
specialization.
Trade protection may be advocated to promote economic
diversification or to provide protection for specific groups. The cost of
such protection is lower average living standards.
Protection can also be urged on the grounds that it may lead to higher
living standards for the protectionist country than would a policy of
free trade. Such a result might come about by using market power to
influence the terms of trade or by protecting infant industries until
they become efficient enough to compete with foreign industries.
Some invalid protectionist arguments are that (a) buying abroad
sends our money abroad, while buying at home keeps our money at
home; (b) our high-paid workers must be protected against the
competition from low-paid foreign workers; (c) imports are to be
discouraged because they reduce national income; and (d) trade
protection increases domestic employment.