1. Restrictions on Free Trade

2. 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.

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

4. 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?

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

7. 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

8. 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

9. 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

10. 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