Protectionism is the practice of protecting a country’s domestic (native) firms or population from foreign goods.
1. Tariff – This is a tax on particular imports, for example imports of golf buggies from most Non-EU countries have a tariff of 5%, this makes domestic firms relatively more competitive in the UK.
2. Quota – This is limiting the amount of a product that can enter the country (imports), for example the EU has quotas on steel products from Kazakhstan.
3. Embargo – This is a ban on imports from of a certain product or from a certain country, this tends to be to stop the imports of very demerit goods or for political reasons, for example the EU Embargo/Ban on the importing of torture equipment.
4. Subsidy – Rather than making imports relatively more expensive the . government could subsidies domestic firms to make them relatively cheaper and more competitive.
1. Avoids Overspecialisation:
+ It means that countries are less dependent on one another.
– It reduces the potential economies of scale and the TPC (Trade possibility curve).
2. Avoids domestic industries from being very undercut on price, which could be due . to dumping or unfair competition. It can prevent structural unemployment from declining ‘sunset industries‘ and protects infant industries from developed competitors.
3. It can mean that consumers loose out (welfare loss) as they have to pay a higher price and may have a smaller range of products to choose from.
4. Government revenue:
+ Can raise revenue for the government (tariff).
-/+ Can cause extra spending (subsidy) which is bad for the budget but good for AD.
5. Improve the current account as there are less imports/more exports which could subsequently boost AD.