Friday, 17 February 2017

Protectionism

A question and answer on a 25 marker competition question.

Extract C suggests that 'increased protectionism could be damaging as the UK is placing much of it's hopes for export success on the growing Chinese market'.

Use the data in the extracts and your economics knowledge to evaluate the view that the use of protectionism is inevitably damaging to economies. {25}

Protectionism is the attempt to impose restrictions on the trade of goods and services. There are many types of protectionism such as quotas which limit the number of goods and services exported as well as the most common form of protectionism; tariffs which are taxes imposed on good and services imported from other countries.

The use of protectionism deters unfair competition to certain extents; for example the increase in antidumping tariffs for solar panels has decreased the incentive for consumers to buy imported goods and services and as a result help to protect sunrise industries ( industries which involve new technologies) such as solar panel manufacturers from Chinese competition. It enables companies to grow and become globally competitive and as a result increases job prospects in the country which in turn may result in a reduction in people in absolute poverty as they may be able to get jobs in these new industries. This would also help to increase the standards of living for those in absolute poverty as they may now be able to afford basic needs such as food or shelter. This as a result would allow governments to meet unemployment targets and to spend less on welfare benefits which is beneficial for the economy as a whole. A good example of an economy that would benefit from this currently would be Germany due to the increase in refugees in camps. If new jobs were to be created then some of the refugees ( in absolute poverty) may be able to settle down with a reliable source of income.

On the other hand whilst the use of protectionism can be beneficial for the creation of trade for some countries, it could be damaging to other countries as it may divert trade away. Say that China is exporting solar panels to the EU (domestic)  at World Supply as shown in the diagram. The EU (domestic) may decide to use anti-dumping tariff ( taxes imposed  to foreign imports) to raise the price from P1 to P2 and as a result would increase the producer surplus and reduce the consumer surplus(allocative efficiency). This in turn would act as a disincentive as it is more expensive that those being sold in the EU. This would result in China ( in this case) to trade elsewhere with other countries and may use the same tactic against the EU which in turn would damage many economies as China is and economics 'powerhouse' in the World.

Another example of protectionism is quotas. Quotas limit the amount of goods and services can be imported into a country. As a result of this it limits competition which in turn results in a lack of innovation (dynamic efficiency) and the quality of products that are supplied to consumers. This further limits the LRAS from shifting outwards. Furthermore due to the lack of competitiveness, local and national domestic businesses may need to outsource jobs due to pressures and lack of skills which in turn could lead to layoffs in the long-run  and therefore limit or slowdown economic growth which is damaging to economies. An example of where this may be happening is in South Korea where they imposed quotas for rice which lead to a decrease to the quality of rice produced. Quotas were set to countries such as India and Pakistan who are large exporters of rice. The quota may also damage trade and thus protectionism is damaging economies in the long-run.

On the contrary protectionism can be beneficial to an economy as it protects sunset industries (industries  in decline such as the UK steel industry). The quota limits the amount of goods and services imported. For example Mexico's import quota for sugar is 250,000 tonnes. As a result of the quota, many industries like steel producers (Tata Steel) have less competition and therefore have the opportunity to grow or decline slowly. Import quotas are some of the reasons why the UK industry hasn't fallen into sharp decline as they face extreme competition of cheap Chinese steel. The use of a quota may suggest a reduction in imports which in turn leads to a decrease in the trade budget deficit and thus benefits an economy in reaching the countries balance of payment targets (UK's target being a stable/ equal balance of payments). This may result in positivity or boost in confidence for an economy in the short-run.

Overall the use of protectionism is beneficial for an economy in the short-run as it can provide more job opportunities due to lack of competition in new industries which in turn may reduce absolute poverty and increase the standards of living; however, the long term impacts of protectionism such as an economic slowdown due to a lack of competition as well as possible retaliation by countries affected by import tariffs. Quotas can be damaging to economies, thus in the short-run protectionism can be beneficial but in the long-run protectionism can be inevitably damaging to economies to a certain extent.

This question got 20/25 marks and is a good example with quite a solid mark. In order to get further marks it could have included further well analysed factors and examples. 
  • Make sure that you use plenty of keywords like in the above essay. 
  • Also use plenty of your own economic knowledge ( examiners love this!!)
  •  Use lots of connectives to structure your work so it flows better.( Avoid words such as also as it can break up your chains of analysis)
  • And refer to the question constantly

I hope that this has been helpful and good luck in any upcoming exams :) !


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