The policy of protection is adopted to increase the bargaining power in trade negotiations. International trade is based on reciprocal basis. Tariff can be used as an instrument of bargaining, i.e., forces the other countries to lower their tariff duties.
Thus, through protection, a country can obtain favourable terms for its exports from other countries. The bargaining argument has the following drawbacks:
(i) Tariff as a method of bargaining may lead to retaliation by other countries. In this way, it is harmful to both the countries.
(ii) If a country is dependent on imports for basic commodities, the tariff rise may be inflationary. The resultant adverse internal developments and the depressing effects on exports may more than offset any gain in bargaining.
ADVERTISEMENTS:
(iii) The bargaining argument ignores the possibility that a country may use non-tariff concessions to obtain tariff concessions from its trading partners.
(iv) Bargaining mentality should be aimed at elimination of the loss from tariffs. But, in reality this mentality may be wrongly used to get as much as possible from other countries, while giving up as little as possible.
(v) The bragaining argument is not a wise and desirable argument. Arguing that protective tariff should be imposed in order to use it to bargain with is just like arguing that one should contract a disease in order to enjoy it being cured.