Protectionism

Tariffs

A tax imposed on an imported good or service to increase the cost of production for foreign producers and increase the competitiveness of domestic producers.

Pros

• Infant industries are able to innovate with protection from the government

• Creates jobs for domestic workers

• Increased government revenue

Cons

• Increase in price for consumers

  • Worse income distribution

• May cause trade wars

• Reduced overall economic efficiency

  • Less competition » less innovation/ growth

Quotas

A limit on the quantity of goods or services imported into a country to protect domestic industries by restricting foreign competition.

Pros

• Protects infant domestice industries

• Creates more jobs for domestic workers

Cons

• Increase in price for consumers

  • Income distribution worsens

• Reduced consumer’s choice of goods

• Reduced overall economic efficiency

  • Increase in production by inefficient producers » misallocation of resources

Subsidies

Financial assistance given to domestic producers, specifically for goods that don’t have a comparative advantage.

Pros

• Innovation from increased revenues

• Creates more jobs for domestic workers

Cons

• Government deficit

  • Opportunity cost

• Reduced overall economic efficiency

  • Increase in production by inefficient producers » misallocation of resources

Export Subsidies

A payment by the government per unit of exported goods and services to increase the quantity of exports.

Pros

• Domestic employment increases

Cons

• Consumers pay higher prices.

  • Worse income distribution.

• Decreased overall economic efficiency

  • Increase in production by inefficient producers » misallocation of resources.