Globalisation and Trade Restrictions: Protecting Strategic Industries
This section explores one of the key reasons why countries implement trade restrictions: the desire to protect strategic industries. We will examine what constitutes a strategic industry and the rationale behind government intervention to safeguard these sectors.
What are Strategic Industries?
Strategic industries are sectors of the economy that are considered vital for a nation's economic, political, or military security. These industries often have a significant impact on a country's overall well-being and are deemed essential to maintain domestic capabilities.
Examples of strategic industries include:
Defence
Energy (oil, gas, nuclear)
Telecommunications
Financial Services
Advanced Technology
Food Production (in some cases)
Why Protect Strategic Industries?
Governments may impose trade restrictions to protect strategic industries for several reasons:
National Security: Protecting industries like defence and energy is crucial for a nation's ability to defend itself and maintain its sovereignty. Reliance on foreign suppliers for these essential goods can be risky, especially during times of conflict or political instability.
Economic Independence: Developing domestic capabilities in strategic sectors reduces dependence on other countries. This can enhance economic resilience and prevent vulnerabilities to external pressures.
Job Creation: Protecting domestic industries through trade restrictions can lead to the creation and preservation of jobs within the country. This is a politically popular argument.
Technological Advancement: Supporting strategic industries can foster innovation and technological development within the country. Protection can provide a market for new technologies and encourage investment in research and development.
Maintaining Essential Services: Ensuring a reliable supply of essential services (e.g., energy, telecommunications) is vital for societal well-being. Protecting industries that provide these services helps guarantee their availability.
Types of Trade Restrictions Used to Protect Strategic Industries
Governments employ various trade restrictions to achieve the goal of protecting strategic industries. These include:
Trade Restriction
Description
Example
Tariffs
A tax on imported goods. Increases the cost of imported products, making domestic industries more competitive.
A tariff on imported steel to protect the domestic steel industry.
Quotas
A limit on the quantity of a good that can be imported. Restricts the supply of foreign goods, benefiting domestic producers.
A quota on imported automobiles to protect the domestic automotive industry.
Subsidies
Government financial assistance to domestic producers. Reduces the cost of production, making domestic goods cheaper and more competitive.
Government subsidies to the renewable energy sector to promote its growth.
Import Licenses
Government permission required to import certain goods. Limits the number of imports, protecting domestic industries.
Requiring a license to import certain electronic components to support the domestic electronics industry.
The Potential Drawbacks of Protectionism
While protectionism can benefit strategic industries in the short term, it also has potential drawbacks:
Higher Prices for Consumers: Trade restrictions often lead to higher prices for consumers, as they reduce competition and limit the availability of cheaper imports.
Reduced Consumer Choice: Protectionism can limit the variety of goods available to consumers.
Inefficiency: Protected industries may become less efficient, as they are not exposed to competitive pressures.
Retaliation: Trade restrictions can provoke retaliatory measures from other countries, leading to trade wars and economic damage.
Distortion of Resources: Protectionism can divert resources away from more efficient sectors of the economy.
Suggested diagram: A simple diagram showing a domestic industry protected by a tariff, leading to higher domestic price and lower import price. Also show the consumer impact.