Free Trade and Protection

Negatives of Trade Liberation

Christian Bien Portrait_edited.jpg

Christian Bien


Negative #1: Balance of Payments Argument - Need for a Trade Surplus

Some critics argue for protectionism measures to ensure a trade surplus - meaning that our exports should be higher than our imports. However, this is wrong as it means that producers are more important than consumers. In an economy, producers are just as important as consumers.

Negative #2: Anti-Dumping Argument

Dumping is where countries export goods and services on the world market at below cost, often to discourage competition from domestic producers. Some critics argue the need for protectionism measures to protect domestic industries from harmful anti-dumping behaviour from other countries. The only problem is that is it is hard to distinguish between dumping and efficiency improvements.

Topic Menu
Significance of Trade to the Australian Economy
Sources of Comparative Advantage
Calculating Comparative Advantage
The Principle of Comparative Advantage
Forms of Protectionism
Demonstrating Gains in Trade
Tariff Model
Subsidy Model
Positives of Trade Liberation
Negatives of Trade Liberation
Trade Agreements, Blocs and Organisations

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Negative #3: Need to Diversify the Economy

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According to the principle of comparative advantage, a country should specialise in the production of a few goods and services. The diversification argument states that some industries should be protected to diversify the economy and reduce vulnerability to market shocks.

Negative #4: Foreign Investment Argument

The foreign investment argument states that protected industries carry reduce risk and can attract foreign investment. Foreign investment can then be used to finance scalability and ensure a competitive economy of scale.

Negative #5: Infant-Industry Argument

The infant industry argument states that smaller industries need to be protected to allow time for growth into economies of scale where they can be internationally competitive. The only problem is that the industries could become too dependent on protectionism and be discouraged from innovating. In addition, while it is easy to set up protectionist measures, it is politically unfavourable to dismantle them.

Negative #6: National Security Argument

The defence argument states that certain industries should be protected, despite inefficiency, due to their importance during times of war. Industries such as certain agriculture and manufacturing industries play a crucial role in the security of a country. However, this argument is invalid during times of peace.

Negative #7: Employment Argument

One of the main arguments against trade liberation is that protectionist measures should protect domestic industries as this will secure employment in those industries. However, this encourages employment in inefficient industries, whereas the labour would be better off retaining and joining a more productive industry and contributing to a higher, long-term economic growth. For example, many people were unfavourable about the government's decision to end the Automotive Transformation Scheme subsidy as this was one of the factors that led to the closure of automotive manufacturing in Australia and the large losses in employment in that industry. While in economic terms it may be simple to say labour should be employed in more efficient industries, the reality is not always as easy to execute.