Study Notes
Restrictions on free trade are implemented for various reasons, such as protecting domestic industries, preventing dumping, and raising revenue. These restrictions can take the form of tariffs and non-tariff barriers, impacting consumers, producers, and governments.
- Protectionism — economic policies regulating trade to decrease imports. Example: Tariffs imposed to protect domestic jobs.
- Tariffs — taxes on imported goods. Example: A country imposes tariffs to raise revenue.
- Non-Tariff Barriers — restrictions other than tariffs, like quotas and subsidies. Example: Quotas limit the quantity of imports.
- Dumping — selling goods below cost to harm domestic industries. Example: A country sells steel at a loss to undermine foreign competitors.
Exam Tips
Key Definitions to Remember
- Protectionism
- Tariffs
- Non-Tariff Barriers
- Dumping
Common Confusions
- Confusing tariffs with non-tariff barriers
- Misunderstanding the impact of protectionism on living standards
Typical Exam Questions
- How might restrictions on free trade affect governments? Governments may gain short-term revenue but face long-term economic inefficiencies.
- State one reason why producers might gain from protectionism and one way they might suffer. Producers gain from reduced competition but may suffer from decreased innovation.
- With reference to Extract B, examine the likely impact of the imposition of tariffs, by the US, on its current account deficit. Tariffs may reduce imports, potentially improving the current account deficit.
What Examiners Usually Test
- Understanding of different types of trade restrictions
- Reasons behind implementing protectionist measures
- Impact of protectionism on various economic agents