Question

What are the drawbacks of protectionism?

stagnation in quality, efficiency, and innovation

prohibition of subsidies to domestic industries

preventing small businesses from closing down

increased prices and lack of product variety

risk of retaliatory protectionist measures

Answer 1

The major drawback in protectionism is the risk of retaliatory protectionist measures ruining the relationship of the two nations. This entails restrictions on goods of one of the countries. If those restrictions persist then the other ountry may impose barriers against the goods of the other country. This is exactly what is happening between US and China which is harming their economies.

Answer 2

Answer: Drawbacks include

- Stagnation in quality, efficiency, and innovation

- Increased prices and lack of product variety

- Risk of retaliatory protectionist measures

Explanation: Stagnation in quality, efficiency, and innovation may occur as domestic firms face less competition, implying greater domestic monopoly power. Monopoly power implies higher prices. Protectionism can also limit consumers’ choices of products, leading to a lack of product variety. Lastly, when a country uses protectionism, there is a risk of retaliatory protectionist measures. When one country is faced with protectionist tariffs, for example, they may turn around and impose their own tariff on a product from the opposing country in response.