Cambridge International AS and A Level Economics: Protectionism (9708)

This guide covers section 6.2 (Protectionism) of the Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028. Topic 6 is AS Level content, and the syllabus says the AS Level content is assumed knowledge for A Level Papers 3 and 4, so it is worth knowing well whichever route you take. Every number below is invented and illustrative.

Work through it with the revision notes and the practice set. Check your own gaps with the free diagnostics, tick items off on the course checklist and find the rest of the course on the Cambridge A Level Economics hub. The past papers page shows where to find official papers.

What this unit covers

Section	What you must be able to do
6.2.1	Explain what protectionism means in international trade
6.2.2	Explain tariffs, import quotas, export subsidies, embargoes and excessive administrative burdens (red tape), and their impact
6.2.3	Give arguments for and against protectionism

The syllabus says to assess the case for free trade, the reasons for protectionism and the advantages and disadvantages of different protectionist measures. That wording asks for judgement, not description alone.

6.2.1 Meaning of protectionism

Protectionism is the use of government measures to shield domestic producers from foreign competition. The usual route is to make imports dearer or scarcer. A second route is to help domestic firms sell more abroad. Free trade (trade liberalisation) is the opposite: no deliberate barriers.

The measures fall into two groups.

• Tariff barriers work through the price of imports. A tariff is a tax on imports.
• Non-tariff barriers work through quantity, bans, subsidies or rules. These include quotas, embargoes, export subsidies and red tape.

Protection is a choice about who gains. Domestic producers usually gain. Domestic consumers and foreign exporters usually lose. Always say which group you mean.

6.2.2 The tools and their impact

The running example

Country A (illustrative) buys water pumps from the world market. Prices are in c (currency units) and quantities in thousands of pumps. Country A is small, so it takes the world price as given.

• Home demand: Qd = 200 − P
• Home supply: Qs = P − 40
• World price: 80

Price	Quantity demanded	Quantity supplied	Imports
80 (free trade)	120	40	80
100 (after tariff)	100	60	40
120 (no trade)	80	80	0

In a diagram, the home demand curve slopes down and the home supply curve slopes up. A horizontal line at the world price cuts demand at 120 and supply at 40. Imports are the gap between them.

Tariffs

A tariff taxes goods as they enter the country. It is usually ad valorem, meaning a percentage of the price. A 25% tariff on a world price of 80 adds 20, so the home price rises to 100.

Working:

1. Tariff per unit = 25% × 80 = 20. New price = 100.
2. Qd = 200 − 100 = 100. Qs = 100 − 40 = 60.
3. Imports = 100 − 60 = 40, down from 80 (a fall of 50%).
4. Tariff revenue = 20 × 40 = 800 (thousand c).

The welfare effects are areas on the diagram:

Effect	Working	Value (thousand c)
Consumer surplus lost	½ × (120 + 100) × 20	2 200
Producer surplus gained	½ × (40 + 60) × 20	1 000
Government revenue	20 × 40	800
Welfare loss, production side	½ × 20 × (60 − 40)	200
Welfare loss, consumption side	½ × 20 × (120 − 100)	200

Check: 1 000 + 800 + 200 + 200 = 2 200, the consumer loss. The two triangles are the net loss to Country A (400). The production triangle is resources pulled into a high-cost industry. The consumption triangle is purchases people no longer make.

Responsiveness: quantity demanded falls 16.7% (120 to 100) for a 25% price rise, so the tariff’s effect on demand is inelastic (−0.67). A tariff aimed at cutting total purchases works poorly when demand is inelastic, but it then raises plenty of revenue.

Jobs: if each thousand pumps made at home needs 10 workers, extra output of 20 thousand protects 200 jobs. The consumer loss of 2 200 thousand c spread over 200 jobs is 11 000 c per job. Net of the producer gain and revenue, the cost is 2 000 c per job. Either figure shows protection can be an expensive way to save jobs.

Import quotas

A quota is a physical limit on the quantity that may be imported. A quota of 40 thousand gives the same result as the tariff above: with imports capped at 40, the price must rise to 100 for Qd − Qs to equal 40.

The difference is who collects the gap of 20 per pump on 40 thousand pumps, which is 800.

• If the government auctions licences, it collects the 800, as with a tariff.
• If licences go free to domestic importers, they collect it.
• If foreign exporters hold the right to sell, they collect it, and Country A loses the 800 as well.

Other contrasts: a quota guarantees the import quantity whatever happens to demand, while a tariff lets imports rise if demand rises. A quota gives no automatic revenue and invites lobbying for licences.

Export subsidies

An export subsidy is a payment to domestic firms for each unit they sell abroad. It lowers their costs, so they can charge less in foreign markets.

Country B (illustrative): a firm’s unit cost is 54. Rival firms sell at 50 on the world market. A subsidy of 8 per unit lets it sell at 48 and still receive 56, a profit of 2 per unit. On 300 000 units the cost to taxpayers is 8 × 300 000 = 2.4 million. If 600 jobs depend on the sales, that is 4 000 per job.

Impact: B’s exporters gain sales and jobs. Foreign buyers gain a lower price. Foreign rival producers lose sales and may demand action. Taxpayers in B pay, and resources may stay in an industry with a weak cost position. The subsidy is not a barrier to imports; it is protection of the export side.

Embargoes

An embargo is a ban on trade in a product or with a country. Governments use it for political, security, health or ethical reasons as well as economic ones.

In the running example, an embargo takes imports to zero. The price rises from 80 to 120, which is 50%. Qd falls to 80 and Qs rises to 80.

• Consumer surplus lost = ½ × (120 + 80) × 40 = 4 000.
• Producer surplus gained = ½ × (40 + 80) × 40 = 2 400.
• Net loss = 1 600, with no tariff revenue to offset it.

The embargo hurts the target’s exporters most. Its success depends on whether the target can sell elsewhere, and whether the home economy can do without the good.

Excessive administrative burdens (red tape)

Red tape means paperwork, inspections, licensing, standards testing and customs delays that raise the cost of importing. It is a non-tariff barrier that is often hard to see.

Country C (illustrative): each consignment of fresh fruit is worth 25 000. Paperwork costs 750 per consignment, which is 3% of its value. The consignment waits 3 days and loses 2% of its value a day, so 6% is lost. Total extra cost is about 9% of value, a barrier like a 9% tariff, but the government collects no revenue. Perishable goods and small exporters suffer most.

Who gains and loses

Tool	Home producers	Home consumers	Government	Foreign exporters
Tariff	Gain	Lose (higher price)	Gains revenue	Lose
Quota	Gain	Lose (higher price)	Revenue only if licences sold	Lose volume; may gain per-unit price
Export subsidy	Gain	Little direct effect	Pays	Rivals lose
Embargo	Gain	Lose heavily	No revenue	Lose all trade
Red tape	Gain a little	Lose (higher price)	Admin cost, no revenue	Lose

6.2.3 Arguments for and against protectionism

Arguments for

• Infant industries. A new industry has high costs at small scale. Protection gives time to grow and gain economies of scale. Example: a firm with a unit cost of 130 against a world price of 100 needs a 30% tariff to match. If its cost falls 8% a year, it is below 100 in year 4 (93.13) and the tariff can be removed.
• Declining industries. Protection slows job losses and gives time to retrain workers, easing structural unemployment.
• Dumping. Selling abroad below cost or below the home price distorts competition. A duty equal to the price gap offsets it.
• Strategic goods. Food, defence and energy may be kept domestic for security.
• Current account. Cutting imports can narrow a deficit in the short run.
• Revenue and diversification. A tariff raises revenue, and protection can broaden a narrow economy.
• Standards. Rules can keep out unsafe goods or goods made under poor labour conditions.

Arguments against

• Higher prices and less choice for consumers, and a fall in real income.
• Inefficiency. With less competition, protected firms have less reason to cut costs, and resources stay in industries where the country lacks comparative advantage.
• Retaliation. Other countries may protect in return, so exporters lose too and trade falls overall.
• Higher costs for firms that use imported inputs, which weakens other industries.
• Cost per job, as in the example above.
• Rent-seeking and corruption, especially where licences are handed out.
• Lost gains from specialisation and trade.

Evaluating

A strong answer weighs the case, using these points:

1. Size and strength of the effect: elasticity of demand and supply decides how much a tariff changes quantities.
2. Time: infant protection may help in the long run, but only if it ends.
3. Retaliation: the more the country exports, the more it has to lose.
4. Alternatives: a subsidy aimed at the industry may cost less than a tariff that taxes every consumer.
5. Who is affected: the gainers are concentrated and visible, the losers spread out.
6. Evidence: a claim of protection for jobs needs a figure for cost per job.

Common errors

• Saying a tariff raises revenue without noting the revenue falls as imports fall. Use the imports left after the tariff.
• Calling a quota a tax. It limits quantity; the price rise is the result.
• Describing red tape as a tariff. It raises cost but earns no revenue.
• Forgetting that consumers lose twice from some measures: higher price and less choice.
• Listing arguments with no judgement about which is stronger.

Official syllabus

Cambridge International AS & A Level Economics 9708 syllabus for examination in 2026, 2027 and 2028, published by Cambridge University Press & Assessment, section 6.2.