Is their any disadvantage to a government subsidizing domestic firms to make them able to compete in price with cheaper imported goods?

Answer 1

Some positive elements are that it helps domestic consumers, firms and, workers. However, it could lead to inflation or an overall increase in price of products across all sectors. People may also end up paying higher taxes on goods.

Answer 2

The most obvious disadvantage is that it decreases efficiency.The most efficient producer is the one who can produce for the least cost. Subsidizing domestic industry shifts the production to a less efficient producer. The cost is ultimately borne by the taxpayers that fund the subsidy, leading to decreased purchasing power. Subsidizing domestic industries typically leads to a very short-term boost to the targeted industry, followed by a longer-lasting hardship by the economy as a whole. This is to say nothing of the negative effects on the foreign economy.

A second disadvantage is that protectionist actions often lead to retaliation-in-kind by the foreign government. This can severly harm domestic exports in totally unrelated industries, especially if a "trade war" continues to escalate.

Answer 3

The disadvantage of a government subsidizing domestic firms is that this move may discourage investment of the foreign firms which may have offered better services and employment opportunities.