Trade liberisation
Technology advances
Growth of MNCs
FDI
Protectionism defined
The theory or practice of shielding (or protecting) a country’s domestic industries
from foreign competition by:
-Taxing Imports
-Imposing quotas
-Passing laws
Reasons for Protectionism
-It is human nature to want to protect what is ours
-Protectionism is a government’s actions to protect the businesses and interests of
their own.
-Gov is looking to protect what is theirs.
Tarrif- a tax placed on an import to increase its price and decrease its demand
Reasons why Tariffs are imposed:
-Raise tax revenue
-For environmental reasons
-Protectionism
Adv
-Allows domestic businesses to sell more because theyve gained price advantage
compared to imports
-Domestic producers gain price adv
Disdv
-Some products, even with tariff cost added, do not put off potential customers willing
to pay for unique or unusual imported products.
-Tariffs may just increase costs to consumers
Other countries may retaliate by imposing their own tariffs on imports
A quota is a physical limit on the quantity of goods imported
Imposed because:
When an import quota is set, it allows a country to be sure of the amount of the good
imported from the foreign country.
The amount of the good imported from the foreign country
Quotas are predictable because the actual amount is known.
A tariff is a tax imposed by a government on imported goods and services.
Governments typically introduce tariffs as a protectionist measure to restrict
international trade, shield domestic industries from foreign competition, protect local
jobs, and potentially correct a worsening trade balance. In this specific case, the
Chinese government has introduced a 10% tariff on imported leather, woods, and
bamboo furniture.
Several key factors led to the implementation of this tariff, driven by shifts in
consumer behaviour and strong political lobbying from local industries:
As stated in Extract E, China’s demand for foreign furniture has grown rapidly, with
imports increasing by “more than 25% during 2012”. This massive influx of foreign
goods directly displaced domestic options, shifting market share away from Chinese
producers.
Chinese consumers actively avoided local products, noting they were “too concerned
about the quality” of domestic furniture. This preference caused local manufacturers
to face a sharp “decline in sales”. The government likely intervened to prevent
widespread domestic business failures, which would have led to severe structural
unemployment within the local manufacturing sector.
While the factors driving the tariff are clear, the effectiveness and long-term
justification of this government policy can be heavily debated:
In the short term, the tariff successfully addresses the immediate crisis faced by
domestic manufacturers by raising the price of competing foreign failures by raising
the price of competing foreign goods. However, in the long term, this policy may
reduce the competitiveness of domestic Chinese manufacturers. By shielding them
from foreign competition, local firms lose the incentive to innovate or improve the
quality issues that originally drove consumers away. Furthermore, higher prices on
imported timber and leather increase production costs for any domestic industries
relying on these raw materials, potentially causing cost-push inflation and reducing
consumer surplus.
In conclusion, the 10% tariff is a highly effective short-term intervention to prevent
structural unemployment and stop the immediate decline in domestic sales.
However, as a long-term strategy, it is flawed. It fails to address the root cause of the
issue, which is consumer distrust in the quality of local furniture. For a sustainable
economic recovery, the government should pair this temporary tariff with supply-side
policies, such as subsidies for technological upgrades or stricter quality control
regulations, to ensure domestic firms can eventually compete globally without
protectionism.