Restrictions on Free Trade

Free trade and protectionism Free trade is allowing trade to take place without any restrictions. However ‘protectionism’ represents any attempt to impose restrictions on the trade of goods and services.

What methods can be used? Quotas Tariffs Export subsidies Administrative barriers

Develop your understanding For each of the 4 measures of protectionism – think about and answer the following: What would the impacts be of the method on a domestic business and consumers (within the country)? What would the impacts be on a business trading with the country with the protectionist measure in place? What do you think they aim to do overall?

Homework Wider reading and research – what are the arguments for and against trade barriers?

Arguments for trade barriers They help protect small businesses and new industries They prevent dumping They prevent over-specialisation by protecting a range of different industries

Arguments against trade barriers They restrict consumer choice and opportunities for new businesses and business growth They protect inefficient domestic businesses with higher costs and often lower-quality products Other countries will retaliate by introducing their own trade barriers

Tariffs – the diagram Adding a tariff on increases the price of imports (world supply) from P1 to P2 At P1 there is a domestic shortage This new price (P2) closes the domestic shortage – reducing demand for imports (Q4-Q3) This is filled with supply from around the world (Q1 – Q2) - imports

Quotas – the diagram Domestic production will increase as firms will be willing to supply more At P there is a domestic shortage Limiting imports with a quota will push up prices (P to P1) Importing firms within the quota amount will gain from the price increase