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This document contains a model answer that achieved very high marks to a 25 mark question on the use of protectionist policies in protecting UK firms.
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Joseph Thomson 13.3Discuss the view that protectionist policies should be introduced to protect UK firms. (25 marks)
Protectionism is when a country uses policies like tariffs, quotas and embargoes to affect
imports, in order to protect their own industries from foreign competition. Often protectionist
policies can help in meeting government objectives, like by reducing a balance of payments
deficit, but may also have adverse effects on consumers and foreign producers.
Firstly, one way that tariffs are a useful protectionist policy is in preventing dumping. Anti-
dumping is a strategy used by a government in which a tariff is imposed on foreign goods that
the government believes to be priced below fair market value. Foreign firms are able to provide
these lower prices through their own surplus which they are willing to 'dump' at any price. As
shown below, this tariff will increase prices:
Increased prices mean that there will be less demand for imports, thus preventing leakage and
moving demand for the good to domestic firms, who are likely to sell the good at an equilibrium
price below the price of the imported version. It could be argued though that foreign firms are
simply more efficient, and thus UK firms are being protected despite the fact that they are
incompetent; if left to fend for themselves UK firms may actually increase efficiency in order to
compete with overseas firms, helping to improve growth, rather than using policy that simply
shields inefficiency. Whilst anti-dumping is ultimately an effective method of protectionism, the
World Trade Organisation (WTO) monitors when this policy is used and makes it harder for it to
be implemented, only allowing national governments to act against dumping where there is
genuine ‘material’ injury to the competing domestic industry. The government must then prove
that dumping is taking place, calculate the extent of it's effect on prices and show the injury.
Secondly, protectionist policies can help to protect ‘sunset’ industries which may be struggling to
compete with overseas firms. In the UK, deindustrialisation is a huge problem causing massive
structural unemployment, as most jobs in the UK are now in the tertiary sector and services,
industrial firms are becoming obsolete especially against foreign firms in countries like China
who are experiencing massive and efficient industrial growth. Another protectionist policy that
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ECO3023S Notes 1
