Protectionism (Edexcel IGCSE Economics)

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