2018 H2 Economics Paper 2 Essay 6: Suggested Answers

Protectionism is the use of policy to shield domestic industries from foreign competition. Two common measures are tariffs and administrative barriers.

Tariffs. A tariff is a tax on imported goods, which raises their price in the domestic market and lowers their competitiveness against local products, encouraging consumers to buy domestically. On a supply and demand diagram, the world supply curve sits at the free trade price, and the tariff shifts it upward by the tariff amount. The transacted price rises, so domestic quantity supplied increases while total quantity demanded falls, and the volume of imports between the two shrinks. Consumers face higher prices and less choice, domestic producers gain a larger share, and the government earns tariff revenue, so trade in the good contracts.

Administrative barriers. These are non-tariff measures such as import licences, quotas and stringent quality standards. Rather than raising price directly, they restrict imports by creating hurdles for foreign goods. Import licences let a government limit the type and quantity of goods allowed in, while quality standards set above international norms force costly adjustments on foreign producers and can deter entry, as with Japan's use of strict standards and quotas to protect its rice farmers. The effect is to reduce the quantity of imports and protect local industry without an explicit tax.