4.3 Arguments For and Against Trade Protection

The question asks about a tariff. A tariff is defined as a tax imposed on imported goods. It does not involve a quantity ceiling, a government payment, or an administrative licensing hurdle.

A tariff raises the price of the imported good by the amount of the tax. Importers pass this cost on to domestic buyers, making foreign motorcycles more expensive relative to domestically produced ones. The market then determines how much import volume falls in response.

A physical limit on quantity is a quota. A government payment to domestic producers is a subsidy. Licensing requirements are a non-tariff barrier (NTB). Only the second option correctly captures the price-based tax mechanism of a tariff.

The correct answer is: It adds a tax to the price of imported motorcycles, making them more expensive relative to domestically produced alternatives. This precisely reflects how a tariff operates through the price mechanism.

The question asks for the primary mechanism of a tariff. We need to eliminate options that describe other protectionist instruments, not tariffs.

'Physically restricts the number of motorcycles that can be imported each year' describes a quota, which is a quantity restriction with no tax element. This is not a tariff, so this option is eliminated.

'Pays domestic motorcycle manufacturers a sum per unit produced' describes a subsidy. A subsidy works through lowering domestic producers' costs, not taxing imports. Eliminated.

'Licensing requirements that make it administratively harder' describes a non-tariff barrier. These regulatory obstacles are not taxes. Eliminated.

The only remaining option — adding a tax to the price of imported motorcycles — correctly identifies the tariff mechanism, making it the correct answer.

The scenario describes a new, struggling domestic industry that needs time to grow before it can compete with larger, established foreign firms. The protection is described as temporary, with the expectation that the industry will eventually become internationally competitive.

The infant industry argument holds that young industries in developing economies cannot yet benefit from economies of scale or accumulated expertise, so they should receive temporary protection to grow to efficient scale. The scenario matches every element of this argument: new industry, developing economy, temporary protection, goal of future competitiveness.

The national security argument applies to defence, energy, or food — not shoes. The dumping argument requires evidence that foreign firms sell below cost of production — no such claim is made here. The balance of payments argument is about reducing overall import volumes to narrow a trade deficit — this is not mentioned.

The correct answer is the infant industry argument. The scenario is a textbook illustration of this concept, mirroring examples such as South Korea's protection of its early automobile manufacturers.

The question asks which argument for trade protection best matches the described scenario of temporary protection for a young domestic industry aiming for future competitiveness.

The national security argument protects industries vital to military capacity, energy, or food supply. Shoe manufacturing does not fall into any of these categories, so this option is eliminated.

Preventing dumping requires evidence that foreign firms are pricing below their cost of production. The scenario only says foreign firms are cheaper and more established — no dumping is alleged. Eliminated.

The balance of payments argument focuses on correcting a current account deficit through import substitution. The scenario does not mention a trade deficit — it focuses on industrial development. Eliminated.

Only the infant industry argument fits: temporary protection for a young domestic industry so it can achieve economies of scale and eventually compete internationally without ongoing support.