Cambridge IGCSE Economics: Trade protection: methods, reasons and consequences (0455) – Revision Notes

These notes condense sections 6.2.4 to 6.2.6 of the Cambridge IGCSE Economics (0455) syllabus for examination in 2026: methods of protection, reasons for protection and consequences of protection. For full explanations and a longer worked example, read the study guide. When you are ready to test yourself, use the practice questions, the course hub, the printable checklist and the free 10-minute diagnostics.

Every figure below is invented for illustration. Money is in dollars. The country is fictional.

Core definitions

Term	Definition
Protection	Government action to shield home producers from foreign competition
Tariff	A tax on imported goods
Import quota	A limit on the quantity (or value) of a good that can be imported in a period
Subsidy	A payment from the government to producers that lowers their costs
Embargo	A ban on trade in a good or with a country
Infant industry	A new industry with small output and high unit costs
Declining industry	An industry whose output and employment are falling over time
Strategic industry	An industry a country needs for security or survival, such as food, energy or defence
Dumping	Selling abroad below cost, or below the price in the exporter’s home market
Retaliation	One country responding to another’s protection with its own

6.2.4 Methods of protection

Effect on a market: one set of reminders

Country A buys tea at a world price of 4 per kg. It buys 1 000 000 kg and makes 200 000 kg itself, so it imports 800 000 kg.

A 25% tariff:

1. Tariff per kg: 25% of 4 = 1.
2. New price: 4 + 1 = 5.
3. Quantity demanded falls to 900 000 kg. Home supply rises to 300 000 kg.
4. Imports: 900 000 − 300 000 = 600 000 kg.
5. Revenue: 600 000 × 1 = 600 000.
6. Imports fell by 200 000 kg, which is 200 000 / 800 000 × 100 = 25%.
7. Home output rose by 100 000 / 200 000 × 100 = 50%.
8. Consumer spending moved from 1 000 000 × 4 = 4 000 000 to 900 000 × 5 = 4 500 000.

A quota of 600 000 kg gives the same price and quantities. The gap of 1 per kg (600 000 in total) goes to licence holders unless the government charges for licences.

A subsidy of 0.50 per kg to home growers makes them act as if the price were 4.50. Assuming supply rises steadily, supply at 4.50 is 200 000 + half of 100 000 = 250 000 kg. Cost: 250 000 × 0.50 = 125 000. Consumers still pay 4 and buy 1 000 000 kg, so imports are 750 000 kg.

Summary table

Method	How it works	Price to consumers	Who gains	Who loses
Tariff	Taxes imports	Rises	Home firms, government	Consumers, foreign exporters
Import quota	Caps import quantity	Rises	Home firms, licence holders	Consumers, foreign exporters beyond the cap
Subsidy	Cuts home costs	Stays low	Home firms	Taxpayers
Embargo	Bans trade	Import unavailable	Home firms	Consumers, the banned exporter

Method steps for a protection calculation

1. Find the new price (price × (1 + tariff rate)), or the subsidy-adjusted supply price.
2. Read off or work out quantity demanded and home supply at that price.
3. Imports = quantity demanded − home supply.
4. Revenue or cost = quantity × amount per unit (tariff revenue uses imports; subsidy cost uses home output).
5. Percentage change = change / original × 100.

6.2.5 Reasons for protection

Reason	Argument	Main weakness
Infant industry	New firms need time to grow and cut unit costs	May never become competitive; protection can become permanent
Declining industry	Slows job losses and gives time to retrain	Costly for consumers; delays the move of resources to better uses
Strategic industry	Keeps home capacity for security or food supply	Higher prices; may protect more than is needed
Avoidance of dumping	Stops unfair pricing that destroys home firms	Hard to prove; a low price can simply reflect low costs

Chain of reasoning: infant industry

Small output leads to high unit cost. High unit cost means the firm cannot match the foreign price. It exits before growing. Protection raises the foreign price, the firm survives, output grows, unit cost falls, and the firm can compete without help. So the case is strongest when protection is temporary and has a stated end date.

Chain of reasoning: declining industry

Imports are cheaper, so home sales fall. Firms cut jobs. Workers lose income, and a town that relies on the industry suffers. A quota slows the fall. The cost is higher prices for everyone who buys the good.

Cost per job calculation

Quota raises the price of cloth by 1.20 per metre on 3 000 000 metres bought. Extra spending: 1.20 × 3 000 000 = 3 600 000. It protects 800 jobs. Cost per job: 3 600 000 / 800 = 4 500 per year. Compare that with the cost of unemployment benefit or retraining.

Dumping check

Cost 70, home price 85, export price 60. Loss per unit abroad: 70 − 60 = 10. Export price below home price: (85 − 60) / 85 × 100 = 29.4% lower. Both tests point to dumping. A tariff of 25 would lift the export price from 60 to 85.

6.2.6 Consequences of protection

Effectiveness checklist

• Imports fall by the amount aimed for.
• Home output and jobs rise.
• Home firms improve rather than relax.
• Trading partners do not retaliate.
• The measure can be enforced (not undermined by smuggling).
• The cost to consumers is acceptable.

In the tea example the price rose by 25% and quantity demanded fell by 10%. Price elasticity of demand is −10 / 25 = −0.4, which is inelastic. A tariff on a good with inelastic demand raises more revenue and cuts total consumption less, so consumers bear most of the cost.

Impact table

	Gains	Losses
Home consumers	None directly	Higher prices, less choice
Home producers	Sales, profit, jobs	Less pressure to cut costs
Home government	Tariff revenue	Subsidy bill; lost goodwill
Trading partners’ exporters	None	Lost sales, jobs and revenue
Home exporters	None	Lost sales if partners retaliate

Trading partner calculation

An exporter in Country H sends 5 000 000 of goods to Country A. A tariff cuts sales by 30%. Loss: 5 000 000 × 0.30 = 1 500 000. New exports: 3 500 000.

Evaluation reminders

• Protection helps a few producers and workers a lot, and harms many consumers a little each. Use this contrast.
• Duration, size of protection, elasticity of demand and retaliation all change the answer.
• Finish with a judgement and a reason, not a list.

Must-know distinctions

• Tariff and quota raise price. A subsidy does not.
• Tariff revenue goes to the government. Quota revenue goes to licence holders unless licences are sold.
• Embargo is a total ban. A quota allows some trade.
• Dumping is below cost or below the exporter’s home price. A low price alone is not dumping.
• The cost of protection falls on consumers and taxpayers at home, and on exporters abroad.

Quick self-test

1. Define a tariff.
2. Country A imposes a 15% tariff on a good with a world price of 20. What is the new price?
3. Imports after the tariff are 40 000 units and the tariff is 3 per unit. Calculate revenue.
4. Imports fall from 800 000 to 600 000. Calculate the percentage fall.
5. Give the four reasons for protection in the syllabus.
6. Who collects the gap in price under a quota?
7. A tariff raises price by 30% and quantity demanded falls by 15%. Calculate price elasticity of demand.
8. A quota costs consumers 2 400 000 extra and saves 600 jobs. Calculate the cost per job.
9. Give one effect of protection on a trading partner.
10. Explain why a subsidy may be better for consumers than a tariff.

Answers

1. A tax on imported goods.
2. 20 × 1.15 = 23.
3. 40 000 × 3 = 120 000.
4. 200 000 / 800 000 × 100 = 25%.
5. Infant industry, declining industry, strategic industry, avoidance of dumping.
6. Licence holders, often foreign exporters or importers, unless the government sells the licences.
7. −15 / 30 = −0.5, inelastic.
8. 2 400 000 / 600 = 4 000.
9. Lost export sales, so lower income and jobs in its export industries (or the risk of retaliation).
10. A subsidy lowers home firms’ costs without raising the price consumers pay. A tariff raises the price.

Where marks are usually lost

• Calling a quota a tax, or saying it raises revenue by default.
• Applying the tariff to the whole quantity demanded instead of the imports only.
• Writing a percentage change over the new value instead of the original.
• Describing only home gains, with nothing on trading partners or on consumers.
• Defining dumping as “cheap imports” without reference to cost or the home price.
• Repeating a reason instead of explaining why it matters for that industry.
• Ending an evaluation with no judgement.

Official syllabus

Cambridge IGCSE Economics 0455 syllabus for examination in 2026, version 2, published by Cambridge University Press & Assessment (Cambridge International Education). Content: section 6.2, subtopics 6.2.4 to 6.2.6.