Does the protection of one domestic industry harm another? Please explain.
One of the reasons why the government protects domestic industries from foreign firms is because the firms offer products at lower costs. This gives them a strong advantage in the domestic market. While this can hurt domestic firms, consumers gain the advantage of cheaper prices. This advantage will repeat as the related, consuming firms sell their products to individual consumers and the lower costs of doing business will play a factor in their relationship with their employees (increase workers, increase wages or benefits, build new factories, etc). By erecting barriers to decrease foreign firms competitiveness, you take away all these benefits. In fact, there is a possibility that you will harm all of them if the protective domestic firm abuses the protections to squeeze more revenue from their consumers. For instance, say a domestic car costs $7000 but a foreign car cost $5000. The government puts in laws or policies that bump up the foreign car’s price to $8000 in order to make the domestic car the clear bargain. Now, maybe the domestic car company thinks that it can remain competitive at $7500. Now, the consumers face even more difficulty in stretching their dollar. Finally, there is the potential for political strife between the two countries. The foreign government could impose their own barriers that decrease sales from the domestic firms. At the end of the day, the winners are the protected firms and their employees while the losers are the foreign firms, unprotected related firms and employees, and potentially non-related firms who are victims of a trade war.
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