Do the benefits of protectionist trade policies outweigh the costs?

'Protectionism' is the policy of restricting trade between states through methods such as tariffs and quotas. Tariffs are often used to protect domestic consumers. The diagram linked here shows that a triff operates by increasing the domestic price of the good, thus reducing demand and encouraging domestic producers to expand their output. Imports therefore fall.Tariffs can be used to restrict 'dumping', that is, the selling of goods for export at less than their normal value, and to protect 'fledgling' industries, those that could have comparative advantage in future but have not yet been able to exploit efficiencies of scale. However, tariffs may effectively subsidise inefficient local producers, and therefore force domestic consumers to pay a price higher than the global market price. The deadweight loss that results from this is illustrated by the two pink triangles in the diagram. Therefore, the potential benefits of protectionist policies do not outweigh the costs.

Answered by Emilia C. Economics tutor

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