Protectionism
A2 Economics
Unit 4
Aims and Objectives
Aim:
• Understand protectionism
Objectives:
• 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
Definition
Protectionism:
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.
Price
Techniques of Protectionism Tariffs
Domestic Supply
H
Price With Tariff
F
P+T
G
P
J
World Price
K
L
Domestic Demand
B
E
A
C
Qty
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-latinamerica-16951854
Price
Techniques of Protectionism Subsidies
Consumer Surplus
S
• Before Subsidy
• Government
then subsidises
to shift the
supply curve
downwards.
Producer Surplus
Qty
Price
Techniques of Protectionism Subsidies
Consumer Surplus
S
• After Subsidy
S1
• Supply curve
shifts down,
consumer and
producer surplus
increases.
Producer Surplus
Qty
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/hard
talk/9366475.stm
• Create a spider diagram of the arguments for
and against protectionism in preparation for a
debate/argument.