OxNotes > GCSE/IGCSE Revision > GCSE Economics > Protectionism
Protectionism is the opposite of free trade. Protectionism is put in place because countries are afraid their industries won’t be able to compete with those of other countries.
Protectionism is the opposite of free trade. Protectionism is put in place because countries are afraid their industries won’t be able to compete with those of other countries.
The reasons for protection
Many reasons are economic, while some are political.
Reasons for protecting industries are:
Reasons for protecting industries are:
- Infant industry - Countries often claim they could have a potential advantage in an industry if only they could develop it. They need to protect this industry against more efficient existing industries in other countries, so that it can grow.
- Prevent ‘dumping’ - Firms or countries may try to undercut producers by selling below other countries’ cost of production. This is done to increase their exports into that country which drives out competition, gains market share, and then they raise the price to make large profits because there is are no alternatives/competition. Although illegal, this is difficult to deal with unless you can protect your country.
- Protect jobs - This is one of the main reasons for protection. Reducing the amount of foreign goods/ preventing foreign goods entering a country prevents unemployment.
- Prevent negative externalities - Countries may want to prevent goods that have negative externalities (such as illegal drugs) from entering. (e.g. when the UK had an outbreak of mad cow disease, France banned UK meat imports to prevent the disease spreading to France.)
- Political - Countries may impose measures either to protect their vital industries or for political reasons.
The methods of protection, such as tariffs and quotas
- Tariffs - A tariff is a tax imposed on a good or service to raise its price and reduce demand.
- Quotas - A physical limit on the number of goods imported into a country. It can be in the form of a stated number or percentage of the total market (e.g. Japanese car manufacturers are limited to 11% of the total European car market for outside EU imports).
- Embargo - A ban on the import of a good or service.
- Regulations - Limiting imports through a variety of rules on the import.
Evaluating the methods of protection.
A major problem with protection is that it leads to retaliation. If one country protects an industry, then another country is likely to retaliate by protecting one of its industries. This is likely to result in higher prices, lower quality and less choice. The benefits of free trade are lost.
