Protectionism

Protectionism is the deliberate restriction of international trade to favour domestic industry. It sits opposite free trade, which holds that countries gain by specialising in what they produce relatively efficiently and importing the rest. A protectionist government accepts some loss of that efficiency in exchange for other objectives.

The main instruments are a tariff, a tax on imported goods that raises their price to consumers and generates revenue for the state; a quota, a hard ceiling on the physical quantity of a good that may be imported; a subsidy paid to domestic producers so they can undercut foreign rivals; and non-tariff barriers such as licensing requirements, technical standards, or burdensome customs procedures that raise the practical cost of importing. An outright embargo bans trade in a good or with a country entirely.

Governments justify protection on several grounds: sheltering an infant industry until it reaches efficient scale, preserving employment in a declining sector, protecting industries considered strategically essential, correcting a persistent balance of payments deficit, or retaliating against another country's restrictions. The standard economic objection is that these gains are concentrated and visible while the costs are diffuse — consumers pay higher prices, domestic firms that use imported inputs face higher costs, resources stay locked in less productive uses, and trading partners often retaliate, shrinking export markets.

Protectionism connects directly to the balance of payments, exchange rates, and the theory of comparative advantage, so it rarely appears in isolation.

The CIMA Certificate in Business Accounting fundamentals of business economics syllabus covers protectionism within the international economy section. You should be able to name each instrument, explain how it affects prices and quantities, state the standard arguments for and against restriction, and trace the effect on a country's balance of payments.