Consequences of Trade Restrictions — Globalisation & Trade Restrictions | IGCSE Economics

Exam Frequency Analysis

Past paper frequency (2018 to 2024)

This topic accounts for approximately 6% of your exam marks.

new

Low

New6%

New emphasis in the 2027 syllabus; globalisation, multinational companies and trade restrictions are now grouped as a distinct topic. Guidance based on specimen materials.

Trade restrictions help some groups and harm others, in both the home country and its trading partners.

Effects on the home country

Domestic producers in the protected industry gain market share, output and jobs.
Consumers face higher prices and less choice, which hits low-income households hardest.
The government may gain revenue (from tariffs) but bears costs (from subsidies).
Domestic firms may become less efficient over time, because protection reduces the pressure of competition.
Firms that use imported inputs face higher costs, which can raise their prices and reduce their output and employment.

Effects on trading partners

Trading partners lose export sales to the protecting country, which can reduce their output and employment. They often retaliate with restrictions of their own, so the protecting country's exports fall too. Escalating retaliation can lead to a trade war that leaves all sides worse off.

The overall verdict is that protection can bring short-term gains to a specific industry but tends to impose wider long-term costs through higher prices, lost efficiency and retaliation.

Exam tip

Discuss whether tariffs benefit an economy (8 marks)

What comes up: an 8-mark "Discuss whether or not imposing tariffs would benefit an economy" (often framed around protecting jobs or the current account). Both sides plus a judgement are required.

Write: Why they might benefit: tariffs raise the price of imports (1), so demand switches to domestic firms, protecting their output and jobs (1); they can narrow a current-account deficit (1) and raise government revenue (1). Why they might not: trading partners may retaliate (1), cutting the country's exports and the jobs that depend on them (1); dearer imported inputs raise firms' costs of production (1); consumers pay higher prices and have less choice (1); and protected firms may become inefficient (1). Judgement: state whether the benefits outweigh the costs and why, for example that protection may save some jobs in the short run but retaliation and higher costs tend to make the overall effect negative.

Watch out: a one-sided answer is capped below the top band, and retaliation must be developed (foreign tariffs reduce the home country's exports, which reduces output and employment) rather than just named.