cost of protection

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The total cost to an economy of adopting protectionist trade policies. In the short run, this is the cost to consumers of having to buy more expensive domestic products rather than cheaper or better quality imports. This often exceeds the private gains to domestic producers. In the longer run, protection has other costs: among these are the discouragement to technical improvements given by not having to compete with imports, and the diversion of business effort from improving production into rent-seeking. While in the short run protection may generate employment in the protected production sector, in the long run it cannot cut a country's natural rate of unemployment: it merely diverts labour from potential export industries into import-competing ones.

Subjects: Economics.

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