Protectionism

A2 EconomicsUnit 4

Aims and ObjectivesAim: • Understand protectionismObjectives:• Define protectionism• Explain methods of protectionism• Analyse the effects of protectionism• Evaluate the usefulness of

protectionism

Starter• There is no guarantee that gains of

trade are equally distributed, and although restrictions on trade will probably reduce world welfare, individual countries may feel it is in their interest to do so……

• Economist Article 2011

DefinitionProtectionism:Government actions and policies that restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition.restrict or restrain international trade, often done with the intent of protecting local businesses and jobs from foreign competition.

Starter• In groups decide on as many

methods of protectionism as you can.

• Tariffs

• Subsidies

• Quotas

• Embargoes

• Voluntary Export Restraints

Techniques of Protectionism - Tariffs

• Specific – tax at a fixed rate per unit.

• Ad-Valorem – a tax which is a % of the price of the unit.

• Taxes on imported goods.

• Size of tariff depends on PED.

Techniques of Protectionism - TariffsPrice

QtyB E A C

P

P+T

Domestic Demand

Domestic Supply

Price With Tariff

World Price

J L K

G

FH

Techniques of Protectionism - Tariffs

• World Price before tariff is 0P• Before tariff domestic demand was

0C and domestic suppliers were producing 0B.

• Imports were BC

Techniques of Protectionism - Tariffs

• Tariff imposed price rises to P+T• Domestic demand falls to 0A• Domestic output rises to 0E• Imports are now EA

Techniques of Protectionism - Tariffs

• Domestic suppliers have gained P,P+T, H, J at the expense of consumers.

• HFKL = revenue from tariff• Overall net loss is triangles – JHL &

FKG – the tariff has reduced welfare as a whole.

Techniques of Protectionism - Embargoes

• Prohibition of trade with a country to put pressure on its government to change policies.

• Leads to smuggling and black markets

• http://www.bbc.co.uk/news/world-latin-america-16951854

Techniques of Protectionism - SubsidiesPrice

Qty

S • Before Subsidy

• Government then subsidises to shift the supply curve downwards.

Consumer Surplus

Producer Surplus

Techniques of Protectionism - SubsidiesPrice

Qty

S

S1

Consumer Surplus

Producer Surplus

• After Subsidy

• Supply curve shifts down, consumer and producer surplus increases.

Techniques of Protectionism - Quota

• Limit on the number of imports allowed into a country.

• Used to benefit producers but not consumers.

Techniques of Protectionism – Voluntary Export Restraints (VER)

• One government persuades another to pressurise its exporters into limiting supplies into markets.

• EU had one with Japanese car makers which reduced competition and lead to high consumer prices.

Is Protectionism a good thing?

• http://news.bbc.co.uk/1/hi/programmes/hardtalk/9366475.stm

• Create a spider diagram of the arguments for and against protectionism in preparation for a debate/argument.