Protectionism and trading blocs: tariffs, quotas, subsidies and other barriers, the arguments for and against protectionism, types of trading bloc, and the role of the World Trade Organisation.

What this dot point is asking

Eduqas wants you to explain the methods of protection (tariffs, quotas, subsidies and non-tariff barriers), weigh the arguments for and against protectionism, analyse the welfare effects of a tariff, describe the types of trading bloc, and explain the role of the World Trade Organisation. This builds on comparative advantage by examining departures from free trade.

Methods of protection

The welfare effect of a tariff

Arguments for and against protectionism

Arguments for protection:

• Infant-industry argument: protect a new industry until it grows large enough to exploit economies of scale and compete.
• Sunset-industry / employment argument: ease the decline of a struggling industry to protect jobs and manage structural change.
• Anti-dumping: prevent foreign firms selling below cost to destroy domestic competitors.
• Strategic / revenue: protect strategic industries (defence, food) and raise revenue (useful for developing economies).
• Correcting a deficit: reduce import spending to improve the current account.

Arguments against protection:

• Higher prices and lower consumer surplus, plus a net welfare loss.
• Protecting inefficiency (X-inefficiency) and forgoing the gains from comparative advantage.
• Retaliation and the risk of escalating trade wars that shrink world trade.
• Distorted resource allocation and reduced competition and innovation.

Trading blocs and the WTO

The World Trade Organisation (WTO) is the global body that promotes free trade, oversees trade agreements, sets rules (such as non-discrimination), and provides a mechanism to settle disputes between members, aiming to reduce protectionism worldwide.

Examples in context

• US-China tariffs. The trade war of recent years illustrates tariffs, retaliation and the disruption to global supply chains.
• The EU customs union and single market. A deep bloc with a common external tariff and free movement, central to the UK's post-Brexit trade debate.
• Anti-dumping duties on steel. Tariffs imposed to counter below-cost imports, a common real-world use of protection.

Try this

Q1. Using a diagram, explain how a tariff on imports affects consumer surplus and government revenue. [4 marks]

• Cue. The domestic price rises by the tariff, cutting consumer surplus; the government gains revenue equal to the tariff times the remaining imports; a deadweight loss arises.

Q2. Distinguish between a customs union and a single market. [3 marks]

• Cue. A customs union has free internal trade plus a common external tariff; a single market adds free movement of goods, services, capital and labour.