6.6 Other Arguments for Protection

Generation of Tariff Revenue

In advanced countries, well-developed systems of commerce and financial reporting make it comparatively easy to collect revenue to fund government programmes. Since the collection of income tax revenue is not a problem, revenue tariffs are scarcely used in advanced countries. For instance, tariff revenue currently accounts for roughly 1% of government revenue in the United States. In contrast, developing-country governments have considerably greater difficulty in collecting income tax revenue because informal business activity accounts for a much larger part of their economies. One area where business transactions are well documented in developing countries is that of international trade. This makes import tariffs and other levies on international trade important instruments for generating government revenue in developing countries. Accordingly, there is a high dependence on tariff revenue in these countries. The tariff revenue case for protection seems valid in the case of developing countries, which can use tariff revenues to implement social programmes where external benefits are likely to be derived.

Reducing Consumption of Undesirable Imports

Sometimes, governments deem it necessary to limit the importation of goods they consider undesirable. For instance, governments may be concerned that some imported goods are produced using methods that are harmful to the environment or produced using child labour. In such situations, importing-country governments may view protectionist policies as providing an incentive for offending exporting countries to adopt more environmentally friendly policies or improve labour laws. If an import tariff makes it more difficult (i.e., more costly) for the exporting country to supply its products to the importing country, then this may lead to less pollution or less utilization of child labour. While it may be possible to address these issues through international negotiation – international trade pacts sometimes contain side agreements on environmental and labour concerns – trade policies are often used because they are within the control of the importing country. It is also often true that the desire to limit the consumption of undesirable products is used as a pretext under which support could be provided to an import-competing industry.

The National Security Argument

The national security argument holds that production in some industries are important to national security. Industries that are often cited with respect to this argument include aerospace, advanced electronics, semiconductors, metals and minerals, energy and food production. It is vitally important that some threshold of domestic production be attained. When the Trump Administration imposed tariffs on imports of aluminum and steel for several countries in 2018, it cited national security concerns as its main motivation. We must note that argument is not often used as a justification rather than a legitimate basis for import protection.