Protectionism Evaluate

• Imposing tariffs has many disadvantages and problems
• Many of the arguments against tariffs are also applicable to other forms of protectionism
• Analyzing the disadvantages of tariffs is important to score highly on essay questions
• Tariffs


  • Distort the market
  • Reduce consumer surplus
  • Cause deadweight welfare loss
  • Reduce consumer choice
• Tariffs


  • Cause production inefficiency
  • Lead to retaliation from trading partners
  • Hurt low-income consumers more
• Tariffs are imposed

  Retaliation from trading partners is likely to be much stronger
• Retaliation from trading partners

  Reduces the benefits that may have accrued from the tariffs
• Tariffs tend to hurt low-income consumers more as they often target essential goods
• Tariffs are likely to worsen the distribution of income and equity
• Evaluating the impact of tariffs

  1. Consider the size of the tariff

  2. Consider the elasticity of demand and supply
• If demand and supply are inelastic, the reduction in imports may be quite small despite the tariff