Cambridge International as and a level Economics Ebook

To improve the balance of payments
A government may impose trade restrictions in order 
to improve its current account position. For instance, 
imposing tariff s may encourage consumers to switch from 
buying imports to buying domestic products.
Th
is again, however, may provoke retaliation. If foreign 
governments do retaliate by imposing their own trade 
restrictions then, while the country’s imports may fall, so 
might its exports. International trade would decline and 
again global output would fall. In addition, if the country’s 
products are not internationally competitive because of 
strategic problems, trade restrictions would only provide a 
short-term boost to the current account.
To provide protection from cheap labour
It is sometimes argued that trade restrictions should 
be imposed on products from countries where wages are 
very low. Th
e view is that, in order to compete, wages and 
so living standards in the country would have to fall. Th
is 
is not a very strong argument. Low wages do not always 
mean that a country will be able to produce products 
more cheaply as labour productivity may be low and so 
labour costs may actually be relatively high. If low wages 
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Chapter 4: The macroeconomy 
are actually linked to low costs, it may indicate that the 
countries have a comparative advantage.
Th
ere may be moral arguments for imposing trade 
restrictions on products produced using slave or child 
labour. Even here, however, other approaches may be more 
appropriate as trade restrictions may drive down wages 
even further in relatively poor countries.
Other reasons
Th
ere are a number of other reasons why a government 
may impose trade restrictions. Tariff s may be used to raise 
revenue. Th
is will be successful if demand for imports is 
inelastic.
A government may also engage in trade restrictions 
to try to persuade another government to reduce its trade 
protection. By retaliating against, for instance, another 
government imposing a quota on its exports, it may 
persuade the other government to remove its quota. Th
ere 
is, however, a risk that a trade war will develop.
In addition, a government may seek to protect 
a range of industries to avoid the risks attached to 
overspecialisation.
TOP TIP
Remember that the arguments for free trade are, in 
eff ect, also the arguments against protectionism. 
Similarly, the arguments for protectionism are the 
arguments against free trade.
When students are asked to write about the 
arguments for protectionism, they oft en just devote 
too much attention to describing the methods of 
protectionism. Always consider very carefully what a 
question is asking.