38 - Protectionism

Protectionism

Approach used by governments to protect domestic producers

Trade barriers

Measures designed to restrict imports

Reasons for protectionism

Prevent dumping

Prevent harmful/unwanted goods

Protect employment

Protect infant industries

Reduce current deficits

Gain tariff revenue

Retaliation (heavy taxes or trade barriers, can lead to a trade war)

Dumping

Where an overseas firm sells large quantities of a product below cost in the domestic market

Infant industries

New industries yet to establish themselves

Protection methods

Tariffs/customs duties

Quota

Subsidies

Explain tariffs/customs duties as a protection method

Tax on imports to make them more expensive, thus reducing them

Explain quota as a protection method

Physical limit on the quantity of imports allowed into a country, thus reducing them

Restricted choice + overportection -> inefficiency

Explain subsidies as a protection method

Encourage producers / opportunity costs , boosts exports

Bi-lateral trade agreement

trade deal between only 2 countries

Effect of a tariff or quota on price and quantity

IMPORTS:

Increased price

Decreased quantity

(moves supply curve to LHS)

Effect of a subsidy on price and quantity

EXPORTS:

Decreased price

Increased quantity

(moves supply curve to RHS)