Final answer:
Protective tariffs are used to put foreign producers at a competitive disadvantage to benefit domestic industries. While they can protect domestic growth, they also make imported goods more expensive and can complicate international trade relations. The use of tariffs can potentially be inefficient and counterproductive over the long term.
Step-by-step explanation:
Protective tariffs are designed to affect economic activity by influencing the cost and competitiveness of imported goods in domestic markets. When tariffs are implemented, they put foreign producers at a competitive disadvantage in domestic markets, because these tariffs make imported goods more expensive than goods produced within the country. This could help local businesses by reducing foreign competition, but also makes imported goods more costly for consumers.
However, there's a balance to be struck. Tariffs may protect certain domestic industries in the short term, but they can also hurt the domestic consumers and other industries that rely on competitive imports and international trade. Higher prices stemming from tariffs may benefit domestic producers but also lead to higher costs for consumers and the potential for retaliatory measures from other countries.
The infant industry argument in favor of protectionism suggests that tariffs can help small, nascent industries grow by shielding them from foreign competition. But in some cases, these industries do not develop as intended, creating long-term inefficiencies. Furthermore, protectionist measures can lead to the loss of benefits that arise from international trade, such as comparative advantage, economies of scale, and specialized learning.