Protection helps some firms, but the country as a whole usually pays.
The costs at home
Higher prices, less choice
Consumers pay more and can buy fewer imported goods.
Misallocation of resources
Resources go to firms that produce at a higher cost than abroad.
No incentive to improve
Sheltered firms face less competition, so they cut costs and innovate less.
Higher costs for firms
A tariff on imported inputs, such as steel, raises the costs of car makers.
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Other countries can answer back.
Retaliation: the chain
Country A protects
In 2018 the United States put tariffs on steel and on many Chinese goods.
Country B answers
China put tariffs on US goods, including soybeans.
Exporters lose
US soybean farmers lost sales: protecting one industry hurt another.
The points to remember
- Reduced export competitiveness: higher input costs and retaliation hurt exporters.
- Write it like this: "Protection may provoke retaliation, so the country's exporters lose sales."
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A Paper 1 part (a) in this shape could appear for 10 marks.
Explain two disadvantages of trade protection.
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How the 10 marks are given
| Marks | What your answer needs |
|---|---|
| 9–10 | Theory fully explained, terms used correctly all the way through, the diagram included and fully explained |
| 7–8 | Theory explained, terms mostly right, the diagram included and explained |
| 5–6 | Theory partly explained, some terms, the diagram included |
| 1–4 | Theory only described or stated; few relevant terms |