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What is globalisation, and why do governments use protectionism despite the gains from free trade?

2.4 Globalisation and protectionism: the causes and effects of globalisation, trading blocs, the methods of protection (tariffs, quotas and subsidies), and the arguments for and against protectionism.

An OCR H460 answer to globalisation and protectionism, covering the causes and effects of globalisation, trading blocs and the WTO, the methods of protection (tariffs, quotas and subsidies) including the welfare effect of a tariff, and the arguments for and against protectionism.

Generated by Claude Opus 4.811 min answerUpdated 2026-06-02

Reviewed by: AI editorial process; not yet individually human-reviewed

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Quick answer

Globalisation is the increasing integration and interdependence of the world's economies through trade, capital flows, migration and technology. Its causes include cheaper transport and communications, trade liberalisation, multinational companies and deregulation. It brings benefits (lower prices, growth, choice, technology transfer) and costs (structural unemployment, inequality, environmental damage, loss of sovereignty). Trading blocs (such as the EU) and the WTO promote freer trade. Protectionism restricts trade through tariffs (taxes on imports), quotas (quantity limits) and subsidies to domestic firms. A tariff raises price, cuts imports, helps domestic producers and raises revenue, but reduces consumer surplus and creates a net welfare loss. The arguments for protection (infant industries, jobs, anti-dumping) are mostly outweighed by the case for free trade.

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What this dot point is asking
Globalisation
Trading blocs and the WTO
Methods of protection
Arguments for and against protectionism
Examples in context
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What this dot point is asking

OCR wants you to explain the causes and effects of globalisation, the role of trading blocs and the WTO, the methods of protection (tariffs, quotas and subsidies) and their welfare effects, and the arguments for and against protectionism.

Globalisation

Causes of globalisation include falling transport and communication costs (containerisation, the internet), trade liberalisation (lower tariffs, the WTO), the growth of multinational corporations, financial deregulation and freer capital flows, and the opening up of large economies such as China and India.

Effects: benefits include lower prices and more choice for consumers, faster growth and poverty reduction in emerging economies, technology transfer, and economies of scale; costs include structural unemployment in declining industries, widening inequality (within and between countries), environmental damage, greater exposure to external shocks, and a perceived loss of national sovereignty.

Trading blocs and the WTO

Methods of protection

Tariff: a tax on imports that raises their domestic price, reducing imports and consumption while raising domestic output and government revenue.
Quota: a physical limit on the quantity of a good that can be imported, raising its price and protecting domestic producers, but without raising government revenue.
Subsidy to domestic producers: a payment that lowers domestic firms' costs, helping them compete with imports.
Other barriers: administrative and regulatory barriers (standards, red tape), and embargoes (outright bans).

The welfare effect of a tariff

Step 1: state the starting point

The world price of a good is $\pounds 10$ . At this price domestic consumers buy a large quantity and domestic firms supply only a small share, with the rest imported.

Step 2: impose the tariff

A tariff of $\pounds 4$ raises the domestic price to $\pounds 14$ . Consumers respond by buying less, and domestic firms expand output at the higher price.

Step 3: identify the effects

Consumer surplus falls (higher price, less consumed). Domestic producer surplus rises (more output at a higher price). Imports fall. The government collects tariff revenue of $\pounds 4$ times the remaining imports.

Step 4: interpret

There is a net welfare loss: two deadweight-loss triangles, one from inefficient extra domestic production (resources drawn from better uses) and one from lost consumption. So the tariff transfers welfare to producers and the government but reduces total welfare, the standard case against protection.

Arguments for and against protectionism

For: protecting infant industries until they reach efficient scale; protecting sunset industries and jobs during adjustment; preventing dumping (foreign goods sold below cost); correcting a persistent trade deficit; raising revenue; and national-security or strategic reasons.
Against: higher prices and lower consumer surplus; a net welfare loss; the risk of retaliation and trade wars; reduced competition and efficiency; and the distortion of comparative advantage so resources are misallocated. Most economists favour free trade, accepting protection only in limited, temporary cases.

Examples in context

US-China tariffs. Recent tariff rounds illustrate protectionism, the risk of retaliation, and the costs to consumers through higher prices.
The EU single market. A deep trading bloc removing barriers among members, illustrating trade creation and diversion.
Anti-dumping duties. The EU and UK have imposed duties on steel and other goods sold below cost, the anti-dumping argument in action.

Try this

Q1. Distinguish between a tariff and a quota. [4 marks]

Cue. Tariff: a tax on imports raising price and yielding revenue; quota: a quantity limit raising price but no government revenue.

Q2. State two arguments in favour of protectionism. [2 marks]

Cue. For example protecting infant industries and preventing dumping.

Exam-style practice questions

Practice questions written in the style of OCR exam questions on this dot point, with worked answer explainers. The year tag is the paper they imitate, not the source.

OCR H460/02 20215 marksExplain, using a diagram, the effect of a tariff on an imported good on domestic consumers and producers.

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A short structured question. State that a tariff is a tax on imports that raises the price of the imported good in the domestic market from the world price to the world price plus the tariff.

Develop the effects on a supply-and-demand diagram with a horizontal world-supply line: the higher price reduces domestic consumption and consumer surplus, raises domestic production (domestic firms gain producer surplus and a larger share of the market), cuts imports, and generates tariff revenue for the government (the rectangle on remaining imports). There is a net welfare loss (deadweight loss triangles) from inefficient extra domestic production and lost consumption.

Markers reward the price rise, the fall in consumer surplus, the rise in domestic output, the tariff revenue, and ideally the welfare loss.

OCR H460/02 202312 marksEvaluate the case for a government using protectionist policies to support domestic industries.

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A levels-of-response question. Knowledge and application: define protectionism and its methods (tariffs, quotas, subsidies, regulations). Set out the arguments for: protecting infant industries, sunset industries and jobs, preventing dumping, correcting a trade deficit, and raising revenue.

Analysis: develop, for example, the infant-industry case and the employment effect.

Evaluation: weigh the costs: higher prices and lower consumer surplus, a net welfare loss, retaliation and trade wars, reduced competition and efficiency, and distorted comparative advantage. Conclude with a supported judgement: protectionism can be justified in specific, temporary cases (genuine infant industries, dumping) but generally reduces welfare, so the case is limited and context-dependent.

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Sources & how we know this

OCR A Level Economics (H460) Specification — OCR (2023)