4.1.4 Protectionism

Protectionism

🔗 Restricting the number of imports coming into a country with the aim of shielding its domestic industries.

Causes of Protectionism

• Trade gap (imports > exports)
• Protect local jobs
• Protect sunrise (infant) sectors
• Raise government revenue (tax from tariffs)
• Politics
• Prevents dumping of goods into a country (E.G Chinese cheap steel)
• May be a response to recession, to provide a boost to the economy

Types of Protectionism

• Quota – Limit on imports into a nation (E.G Japanese cars were on an EU quota in the 1960s)
• Government regulation – E.G UK has high food hygiene standards on import goods
• Embargo – A ban on the sale of goods from a nation (E.G USA can't trade with Cuba)
• Subsidies – Grants on tax breaks given to producers (E.G Chinese government subsidises loss-making steel firms)
• Tariffs – Tax on goods being imported (E.G 35% tariff on Chinese tyres into the USA)

Drawbacks

• Risk of 'tit for tat' policies
• Higher prices could raise inflation
• Encourages businesses to be inefficient and less competitive -> Able to charge higher prices and remain stagnant due to government support
• Lower-income groups are disproportionately affected
• Imports are an essential part of a country's export competitiveness.
  • A rise in the cost of imports may raise the cost of production for domestic firms who import raw materials -> Upward pressure on prices to maintain profit margins -> Consumers deterred from buying goods and services choosing foreign goods/services instead -> No benefit