effects of protectionism (2)

Question 1

evaluate the macroeconomic effects of protectionism on an economy of your choice e.g. USA (KAA1; unemployment + economic growth)

Answer 1

PROTECTIONISM MAY BOOST DOMESTIC EMPLOYMENT + STIMULATE ECO. GROWTH
define protectionism (using trade barriers such as tariffs, quotas + subsidies to shield domestic industries from foreign competition) -> e.g. Trump Administration reinforced universal tariffs of 25% on aluminium + steel)
incr prices of Chinese imports (use tariff diagram) -> reduced consumer surplus + Qd for Chinese imports -> incr demand for domestically produced goods (manufacturing industry) + less imports (reduced withdrawals from circular flow -> import substitution -> incr C = incr AD = incr real GDP -> +ve multiplier effect -> infant industries receive a temporary boost -> incr demand for labour -> reduced cyclical unemployment + -ve output gap -> actual eco. growth

Question 2

counterargument: evaluate the effects of protectionism in an economy of your choice (e.g. USA) (EVAL1 - unemployment + eco. growth)

Answer 2

ECONOMIC GROWTH MAY NOT INCREASE SIGNIFICANTLY BECAUSE
- countries may impose retailatory tariffs (e.g. China placed a 125% tariff on US goods after 145% tariff) -> reduced net exports for USA -> reduced AD -> limited growth
- in the LR, growth may be limited as domestic industries face less competitive pressure -> less incentive to innovate + may raise prices -> reduced consumer surplus + harms consumer welfare -> may lead to cost-push inflation
UNEMPLOYMENT MAY NOT FALL SIGNIFICANTLY BECAUSE
- tariffs may increase production costs for import-reliant sectors -> firms may resort to cost-cutting measures to maintain profit margins -> increase layoffs -> incr unemployment

Question 3

judgement: evaluate the macroeconomic effects of protectionism on a particular economy of your choice e.g. USA

Answer 3

overall, while protectionist measures in the USA such as tariffs can provide short-term benefits such as protecting domestic employment, boosting tax revenues + supporting certain industries, these are outweighed by inflationary pressures, the threat of retailiation + risks to global competitiveness. therefore, protectionism is a limited tool for achieving long-term economic stability and growth.

Question 4

evaluate the macroeconomic effects of protectionism on an economy of your choice e.g. USA (KAA2; income inequality)

Answer 4

MAY REDUCE INCOME INEQUALITY + REDUCE FISCAL DEFICIT
- protectionist measures i.e. tariffs can shield low-skilled domestic jobs i.e. in manufacturing from being undercut by cheap foreign labour -> reduced structural unemployment -> reduced income inequality -> inward shift of Lorenz Curve + reduced Gini coefficient -> improved living standards -> more workers have a source of income -> more consumer spending -> generates more income tax revenue + VAT for the gov. (+ corporate tax from infant industries expanding) -> less gov. welfare spending -> reduced fiscal deficit (rev. > expenditure) -> more funds avaialble for public sector investment

Question 5

counterargument: evaluate the macroeconomic effects of protectionism on an economy of your choice e.g. USA (EVAL2; income inequality)

Answer 5

INCOME INEQUALITY MAY NOT IMPROVE BECAUSE
- protectionism may raise consumer prices -> disproportionately affects low-income households as they spend a larger proportion of their income on necessities which are imports -> income inequality may worsen
- employment falling in export-led industries e.g. technology + agriculture -> workers face longer periods of structural unemployment due to occupational immobility -> more welfare spending -> worsened fiscal deficit due to incr expenditure