new protectionism

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The revival of protectionism, with the support of some new arguments. These are based partly on the introduction of strategic considerations, and partly on considering the effects of assuming widespread increasing returns to scale in industry. The strategic argument for protection is that one country may by protecting its own industry deter others from entering into competition with it. The effect of increasing returns, with resulting imperfect competition, is that protecting a country's home market increases the output of its own industry, thus decreasing its average costs and improving its ability to compete internationally. Protection also cuts rivals' output, thus increasing their average costs and impairing their ability to compete. None of these arguments affects the objection that all forms of protection are beggar-my-neighbour policies, so that all countries could gain by agreeing to abstain from them.

Subjects: Economics.

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