Globalisation & Trade Restrictions
International Trade & Globalisation
Governments give several reasons for restricting imports.
- Protect infant (sunrise) industries. New industries may be too small to compete with established foreign rivals; temporary protection lets them grow.
- Protect declining (sunset) industries. Slowing the decline of an old industry gives workers and the area time to adjust and avoids a sudden rise in unemployment.
- Protect strategic industries. A country may want to keep the ability to produce essentials such as food, energy or defence equipment in case trade is cut off.
- Avoid . If foreign firms sell below cost to drive out domestic competitors, a tariff can restore fair competition.
- Reduce a current-account deficit. Cutting imports narrows a trade deficit, at least until trading partners retaliate.
- Raise tax revenue. Tariffs generate revenue, which matters most for governments with limited other ways to collect tax.
- Restrict the import of demerit goods. Barriers can reduce imports of goods that are over-consumed because consumers underestimate the harm they cause, such as narcotics, tobacco or alcohol. An embargo bans them outright, while a high tariff simply makes them dearer.
- Promote environmental sustainability. Restrictions can discourage imports produced in damaging ways or with high transport emissions.
Common exam question
Explaining why a government restricts trade
Question: Analyse why a government may impose tariffs or protect its industries, or explain one way tariffs could help the economy (2–6 marks).
Asked in 3 of the 11 structured papers. Each reason earns a mark, and each step showing how protection achieves it earns another. Infant industries grow to gain economies of scale and lower prices; declining industries shrink slowly, saving jobs; strategic industries keep food supplies safe from sanctions; dumping is kept out; dearer imports improve the current account; tariff revenue funds education; demerit goods are discouraged; and a country may retaliate against others' tariffs.
For both marks in the 2-mark version, one must be for the gain itself (a better current account, more output or more tax revenue); "more revenue" is not enough.
Set in 2 of the 13 multiple-choice papers: a tariff on goods sold below cost aims to stop the other country dumping in yours, and protecting infant industries aims to raise domestic employment.