Protectionism (Edexcel IGCSE Economics)
Introduction to Protectionism
Spec point —
2.2.2b
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Free trade aims to maximise global output through **specialisation at a national level, **e.g. Germany specialises in highly technical capital goods
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However, there are numerous reasons why countries would seek to** limit free trade** in order to protect their markets and employment from too much competition
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This is called protectionism and may take the form of:
- Import tariffs
- Export subsidies
- The use of quotas or embargoes
Reasons for Protectionism
Spec point —
2.2.2b
- Trading partners may retaliate to any methods of protectionism and they should be carefully considered before any implementation
Protectionism policies aims to limit free trade to protect domestic markets
Reasons for Protectionism
| Reason | Explanation |
|---|---|
| Prevent dumping | - Countries may want to prevent dumping, which is anti-competitive and can harm domestic industries |
| Protect employment | - Cheap imports can lead to the shrinking or destruction of domestic industries, leading to structural unemployment - Governments will step in to protect jobs |
| Protect infant industries | - Subsidies are often used to protect new infant firms/industries that would be unlikely to succeed at start-up due to the level of global competition - Once the firms is established, subsidy support is removed |
| Tariff revenue | - Tariffs generate revenue for governments - US received over $100 billion in tariffs in 2022 |
| Protect consumers | - Products that may be unsafe or have potential health risks may be banned from sale in other countries, such as food, toys, and pharmaceutical drugs - E.g. Froot Loops breakfast cereal has been banned from sale in France, Austria, Norway, and Finland because of its artificial colourings |
| Reduce current account deficit | - Governments may want to reduce current account deficit - When imports > exports the amount of money leaving the country is greater than that entering - Protectionism aims to correct this imbalance |
| Retaliation | - Trade disputes may arise when a country perceives unfair trading practices, such as tariffs or subsidies, are being used - These practices can create tensions between countries and they may retaliate by imposing their own protectionism policies - E.g. In response to U.S. tariffs imposed on imports of Chinese steel, China retaliated by imposing tariffs on various American imports, including soybeans, agricultural goods and cars - This New York Times explainer graphically demonstrates the process of retaliation. Scroll down the page to see the full impact |
Exam Hint Most countries wish to impose protectionism to protect their own markets but do not wish to experience protectionism against their own exports. Retaliation against protectionism is often swiftly put in place. It may end up damaging both economies as trade is reduced and consumers are left worse off.
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