Trade policy and trade negotiations

Protectionism: is the act if guarding a country's industries from foreign competition, by imposing restrictions on trade

• if a country employed several portectionist measures, then a trade deficit would reduce. This is because it would be importing less due to tariffs and quotas on imports
• infant industries might need protecting, these are industries which are realtively new and need support
• protectionism could be used to correct market failure, it can deal with de-merit goods 
• governments might want to protect domestic jobs and avoid them being offshored
• some countries might impose trade restrictions as a form of retaliation against trade barriers imposed by other countries

Tariffs- are taxes on imports to a country

• could lead to reatliation so exports may decrease
• the quantity demanded of domestic goods increases whilst the quantity demanded of imports decreases
• tariffs result in higher prices for consumers and a loss in surplus

Quotas

• a quota limits the quantity of a foreign prodcued good that is sold on the domestic market. It sets a physical limit on a specific good imported in a set amount of time. It leads to a rise in the price of the good for domestic consumer so they become worse off

Subsidies to domestic producers

• this makes domestic goods relatively cheap compared to imports. It encourages domestic production to increase, as shown by a right hand shift in the supply curve, and the average price falls

... on consumers, producers, governments, living standards and equality

• Protectionism could distort the market and lead to a loss of allocative efficiency, it prevents industries competing in a competitive market and there is a loss of consumer welfare. Consumers face higher prices and less variety as firms have little to no incentive to lower costs of production
• It imposes an extra cost on exporters, which could lower output and damage economy
• Tariffs are regressive and damgaing to those on low and fixed incomes which could increase income and wealth inequality
• Tariffs could raise more money for the government which could be used to improve public services or redistribute income
• Countries may become hostile (RETALIATION)
• Could lead to governement failure