Since the global financial crisis of 2008 there have been over 5 700 increases in tariffs, quotas and administrative controls on international trade - Edexcel - A-Level Economics A - Question 7 - 2017 - Paper 2

To effectively evaluate the effects of an increase in protectionism on a developing country, let's take the example of a country like India.

Understanding Protectionism

Protectionism involves implementing tariffs, quotas, and regulatory barriers to discourage imports and protect domestic industries. While these policies may benefit certain sectors in the short term, the long-term impacts can be quite significant.

Effects on Consumers and Prices

1. Prices Increase: The imposition of tariffs generally raises the prices of imported goods. For consumers in a developing country, this will likely lead to higher prices for essential goods, reducing purchasing power and potentially lowering living standards.

2. Reduction in Choices: With limited import options, consumers face fewer choices, which can reflect negatively on overall consumer welfare and satisfaction.

Economic Growth and Employment

3. Domestic Industry Protection: Protectionist measures can benefit domestic industries by shielding them from international competition. In India, for instance, this could lead to increased production and potentially higher employment in protected sectors, such as agriculture.

4. Unemployment in Export Sectors: Conversely, if India prioritizes protectionism, industries that depend on exports may suffer due to retaliatory tariffs imposed by other countries, leading to job losses.

Impact on Trade Relations

5. Retaliation from Other Countries: An increase in protectionism might provoke retaliatory actions from trade partners, escalating into trade wars that can further harm a developing nation's economy. This cycle can result in lost export opportunities and strained international relations.

Economic Diversification and Innovation

6. Stifling Innovation: Prolonged protectionism may decrease the incentive for domestic firms to innovate, as competition is suppressed. In the long run, this could hamper economic growth and the country's ability to compete globally.

Conclusion

While protectionism may offer short-term relief to specific industries within a developing country, the broader economic implications—such as higher prices, potential job losses in export sectors, stifled innovation, and retaliation from trade partners—paint a concerning picture. Therefore, careful consideration is essential when evaluating the effectiveness and necessity of protectionist policies.