Protecting strategic industries

Preserving key industries

Description

The argument that an industry has strategic importance is often advanced to justify protection of that industry against imports from abroad.

Implementation

Industries frequently protected are agriculture, steel and automobiles. One industrial country has argued that its clothing industry is essential for defence because it produces uniforms for the army. According to economic theory, such protection is best achieved through subsidies, not tariffs or import controls. Subsidies do not raise prices, hurt consumers or raise costs to users; but they often get out of hand and play havoc with budgets.

Claim

If allowing domestic producers to collapse meant the creation of a worldwide monopoly, which could then raise prices to very high levels, a case for subsidies to preserve some competition could be made. But this would be a special and somewhat speculative case.

Counter-claim

For many products stockpiling is a cheaper way to preserve supplies for emergencies than protecting the industry. It is not clear why a country should need its own aircraft industry or computer industry if it can buy more cheaply from foreign suppliers.