DO NOW

How do different types of trade barriers impact on the market for imported goods and
services?
Discuss the arguments in favor of trade protection, as well as the arguments against
domestic protection.
 • Explain Free Trade
• Explain and evaluate arguments for
protectionism
• Explain and evaluate arguments against
protectionism
• Explain and illustrate free trade
Lesson • Explain and illustrate when a country can export
• Types of protectionism
Objective • Types of Trade protection
Section 4.2/ 4.3 • Free trade vs protectionism
• HL: Calculations
  Free trade - the free movement of goods and services between different
nations, free from government taxes or restrictions on the movement of
those good and services.

 Protectionism - when restrictions are placed on the free movement of

goods and services.
Terminologie  Tariff - a tax placed on an imported good or service, put in place to
s protect domestic industries, but also as a method of raising tax revenue.
 Quota - a limit on the numbers or value of a good or service that a
country will allow into the country, either a quota representing the total
volume of a specific product that is allowed into the country, or broken
down by country.
 Domestic subsidy - rather than penalizing cheap imported products a
domestic subsidy instead provides financial incentives for domestic firms
to compete with low-priced goods and services produced overseas.
 Red tape / bureaucratic barriers - another option for governments
wishing to protect their own domestic firms. These are sometimes called
hidden barriers as officially they do not exist. Examples of this form of
barrier include restricting the import of goods and services on the grounds
of national security, health and safety or environmental standards.
 - Protection of domestic employment and
Arguments in infant/sunrise industires: they may eliminate the
potential for survival of newly established industries,
favor of referred to as infant or sunrise industries. Through trade
protectionis barriers their chance of growth increases.(but yet with
the current diverse capital market, the small companies
m should be able to finance itself to open up in the needed
Why do some countries
right size) The same is true for sunset industries, that
protect or put restrictions on close, as they cannot compete. This is avoided to reduce
their imports? the high levels of structural unemployment. (it is likely
some industries may close, and the resources be used in
other industries more efficiently)

- Protecting the economy from low-cost labor: The

economy should be protected by countries where the
labor cost is very low. (however, this goes against the
comparative advantage theory, as local consumers will
pay higher prices than they should and production in the
protected economy would take place at an inefficient
 - Avoid the risk of over-specialization: The
Arguments in government wants to limit over-specialization if it means
that the country becomes over-dependent on the export
favor of of sales from one or two products. (so when other
protectionis countries produce it, if affects them as they would not
have a comparative advantage anymore. Eg: Ethopia and
m coffee)
Why do some countries
protect or put restrictions on - Strategic industries: certain industries need to be
their imports? protected in case they are needed at times of war.
Therefore they are encouraged by governments to set up
within the country and are protected. (steel for weapons
Activity Homework: ex 24.1
269
and agriculture for food)

- T0 prevent dumping: dumping is selling by a country

large quantities of a product at a price lower than its
production cost. (if a country has a surplus of a product,
they sell it at a lower cost to the other) When countries
can prove that their industries have been severely
 - Protect product standards: impose safety, health, and
Arguments in environmental standards on goods being imported into its
domestic market to ensure that the imports match the
favor of domestic standards. (certain poultry or agriculture
protectionis products) But this is accepted as long as the concerns are
valid but sometimes, they are a way to impose
m protectionism. Another issue is the cost involved in
Why do some countries
meeting the product standard and getting the right
protect or put restrictions on documentation of proof and approvals.
their imports?
- To raise government revenue: tariffs on products, this
help to raise the government revenue. (the import duties
are actually taxes on the consumers in the country who
are buying the imports)

- Correct a balance of payment deficit: trade barriers

restrict imports and allow countries that have an
imbalance between exports and imports to cut spending
on imports and reduce this trade deficit.
 • May raise prices to consumers and producers
Arguments in • Less choice for consumers
against of
• Competition would diminish foreign firms are kept out of
protectionis
m a country, so domestic firms may become inefficient.

• Distorts comparative advantage, leading to the inefficient

use of the world’s resources, hence reducing the potential

level of the world output.

• May lead to “trade war” with escalating tarrifs.

• May hinder economic growth

 • Tariffs: a tax that is charged on imported goods. (as with
Main types of any tax it would shift the supply curve upwards, it is put
protectionis on the foreign products not the domestic products)

m Because of tariffs, we can see that we have both consumers

TARRIFS + and producers dead weight loss

SUBSIDIES • Subsidies: When the government gives subsidies to

Supply and Demand graphs
domestic consumers to make them more competitive and
with free trade so the effect will be to shift the supply curve downwards.
- World Price below
equilibrium import
• In the case of subsidies, there will be no deadweight loss
for consumers, as they would stay the same, it would
- World price above
equilibrium export
only be producers, since th subsidy is given to local
producers.

• [Link]
s
• [Link]
 Quotas: the physical limit on the number or values of goods
that can be imported into a country.
Main types of Q2/Q4: is the consumers lost
protectionis Q3/Q4 are the producers that are producing inefficiently
m So both of these are the dead weight loss

QUOTA
Supply and Demand graphs
with free trade
- World Price below
equilibrium import
- World price above
equilibrium export

[Link]
 Red Tape: when importing goods, there is an
Main types of administrative process and lengthy and complicated to
protectionis restrict imports. (paperwork, legal documents, or certain
ports for entry)
m
Administrativ Health and Safety Standards: restrictions and
manufacturing processes which may restrict certain
e Barriers imports, to be able to guarantee the health and safety of
Supply and Demand graphs
the population by preventing the import of unhealthy or
with free trade unsafe goods.
- World Price below
equilibrium import Embargoes: a complete ban on imports and is usually put
in place as a form of political punishment. It is rare, usually
- World price above
equilibrium export
restrictions on one or two products, to get the desired
political objective.

Nationalistic Campaigns: governments will sometimes

run marketing campaigns to encourage people to buy
domestic goods instead of foreign ones to generate more
demand and preserve domestic jobs.
Exit Tickets

P377 Assessment Advice

Part 1(b) 15 marks