(a) What is protective tariff? (b) Outline any four reasons in favour of protective tariff. (c) State any two reasons against protective tariff.

Answer Details

(a) Meaning of protective tariff. A protective tariff is a tax or duty imposed on imported goods mainly to raise their prices so that they become more expensive than locally produced goods. Its chief aim is not revenue but to shield domestic industries from foreign competition.

(b) Four reasons in favour of a protective tariff.

1. Protection of infant industries. Newly established local industries are too weak to compete with large, efficient foreign firms, so the tariff gives them time to grow and become efficient.
2. Protection of employment. By reducing imports and encouraging local production, the tariff helps to preserve and create jobs in domestic industries.
3. Correction of balance of payments deficit. The tariff discourages imports, reduces foreign exchange spending, and so helps to improve an unfavourable balance of payments.
4. Prevention of dumping. It stops foreign producers from selling goods below cost in the home market to destroy local industries.

(Other valid reasons include protection of strategic or defence industries and raising government revenue.)

(c) Two reasons against a protective tariff.

• It raises prices for consumers. By making imports dearer and shielding inefficient local firms, tariffs force consumers to pay higher prices for a narrower range of goods.
• It encourages inefficiency and can provoke retaliation. Protected firms have little incentive to cut costs or improve quality, and trading partners may impose counter-tariffs that reduce the country's own exports.