Protectionism

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Protectionism

Sometimes governments believe it is in their countries best interest to restrict trade.

Why?

To protect jobs.

Unemployment is undesirable and a government may be criticised if jobs are lost to cheap imports.

To protect 'infant industries'.

New industries need time to become established and may need protecting from overseas rivals.

To prevent 'dumping'.

This is where foreign producers sells goods below cost.

To raise revenue.

To prevent the entry of harmful or undesirable goods.

Details here.

To improve the balance of payments.

This is where the spending on imports exceeds the income from exports.

Methods of protectionism:

Tariffs:

Taxes on imports are called tariffs or customs duties.

Products produced overseas will become more expensive.

UK customers will be encouraged to buy UK products.

The impact of tariffs will depend on the price elasticity of demand for the imported product.

Examples of tariffs here.

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Import quotas:

A physical limit on the number of items that can be imported into a country.

Quotas will raise prices as fewer cheaper products are available.

An extreme form of a quota is an embargo.

This is where imports are completely banned from a country.

Government legislation and subsidies:

Government legislation can also be used to limit imports.

These include setting product standards, health and safety regulations and labelling requirements. 

Administrative barriers such as safety rules for toys.

Subsidies.

A subsidy involves giving financial support to domestic producers that face fierce competition from imports.

Or giving financial support to exporters to help them sell in overseas markets.

Rolls-Royce gets government help. Details here.

Problems with trade barriers.

Countries may retaliate if tariffs are imposed.

This may lead to a 'trade war'.

Tariffs are ineffective for price inelastic products.

More pages for 4.1 below. Click on Older Posts.