IB DP Economics: Arguments for and against protection – Revision Notes

These revision notes follow the IB Diploma Programme Economics guide (first assessment 2022, published February 2020), the course examined from the 2022 session onwards. They cover sub-topic 4.3, Arguments for and against trade control/protection, which is SL and HL. The guide marks no 4.3 content as HL only.

For full explanations, start with the study guide. Then test yourself with the practice questions. The course page is the IB DP Economics hub, and the printable checklist tracks what you have covered. The free 10-minute diagnostics show where to focus. All figures here are invented.

Arguments for protection: one line each

Argument	Core idea	Main weakness
Infant (sunrise) industry	Shelter a new industry until it reaches efficient scale	May never become efficient; picking winners is hard
National security	Keep supply of vital goods under home control	Label stretched; stockpiles may be cheaper
Health and safety	Keep out harmful goods	Can disguise a barrier; standards may be too strict
Environmental standards	Stop imports made with heavy pollution undercutting clean producers	Hard to measure; may hurt poor exporters
Anti-dumping	Stop sales below cost or below the home price	Low price may reflect real efficiency
Unfair competition	Offset foreign subsidies or weak rules	Hard to prove; others may say the same of you
Balance of payments correction	Cut imports to narrow a deficit	Retaliation; root cause unchanged
Government revenue	Tariffs raise money	Higher tariff shrinks the tax base
Protection of jobs	Keep domestic workers employed	High cost per job; jobs lost elsewhere
ELDC diversification	Build a broader base than a few primary exports	Small markets; weak institutions

Arguments against protection: one line each

Argument	Core idea
Misallocation of resources	Resources stay where the country has a comparative disadvantage
Retaliation	Partners respond with their own barriers, so trade and exports fall
Increased costs	Firms pay more for imported inputs
Higher prices	Consumers pay more for imports and for domestic substitutes
Less choice	Fewer varieties and qualities available
Lack of incentive to become efficient	Sheltered firms face less pressure to cut costs
Reduced export competitiveness	Higher input costs and closed foreign markets hurt exporters

Key definitions

• Protection: government action that restricts imports or favours domestic producers.
• Infant industry: a young industry with high costs because it is small and inexperienced.
• Dumping: an export price lower than the cost of production, or lower than the exporter’s home price.
• Retaliation: a trading partner’s barrier imposed in response to yours.
• ELDC: economically least developed country.

Method boxes

Test whether something is dumping

1. Find the export price.
2. Compare it with the producer’s cost of production.
3. Compare it with the price charged in the home market.
4. If the export price is below either, it fits the definition.

Cost per job saved

1. Find the extra amount consumers pay: price rise × quantity bought.
2. Divide by the number of jobs saved.
3. Compare with the average wage of those workers.

Tariff revenue

1. Revenue = tariff per unit × quantity imported after the tariff.
2. If the tariff is a percentage, change it to a per-unit amount first: price × rate.
3. Use the new import quantity, not the old one.

Balance of payments effect

1. Find the starting balance: exports minus imports.
2. Apply the fall in imports.
3. If a partner retaliates, apply the fall in exports as well.
4. Recalculate and compare.

Worked reminders

Infant industry. A fictional firm has an average cost of 80 and faces an import price of 60. The gap is 20, so the tariff must be at least 20 ÷ 60 = 33.3%. When its cost falls to 50 at larger output, protection is no longer needed.

Dumping. Cost 52, home price 70, export price 45. It is below cost by 7 and below the home price by 25. An anti-dumping duty of 10 lifts the import price to 55, a rise of 22.2%.

Jobs. Price up 10 on 300 000 pairs = 3 000 000 extra. With 150 jobs saved, the cost is 20 000 per job. If the wage is 14 000, the policy costs more than the wages it protects.

Balance of payments. Exports 700, imports 800: deficit 100. Imports fall 15% to 680, giving a surplus of 20. If exports then fall 5% to 665, the balance is a deficit of 15.

Revenue. With import volume M = 1 000 − 20t, revenue at 10%, 20%, 25%, 30% and 40% is 8 000, 12 000, 12 500, 12 000 and 8 000. It peaks near 25%.

Must-know distinctions

• Dumping and unfair competition. Dumping is about the export price relative to cost or the home price. Unfair competition is about a cost advantage from subsidies or weak rules.
• Health and safety and environmental standards. The first protects the people using the good. The second addresses the harm done in making it.
• Government revenue and protection. A tariff that raises a lot of revenue lets many imports through. A tariff that stops imports raises little.
• Jobs saved and jobs lost. Count jobs in protected industries and the jobs lost through higher input costs and retaliation.
• Infant industry and permanent protection. The first has an end date. If there is no end date, the lack of incentive argument applies.
• Comparative advantage and absolute cost. Protection is not justified only because a foreign producer has a lower cost, since the home country may still gain from specialising elsewhere.

Evaluation toolkit

Use these in any AO3 answer.

• Short run or long run
• Winners and losers
• Size of the cost or gain
• Alternatives to protection
• Retaliation and country size
• Type of country (ELDC or high income)

The guide’s definition of evaluate is to weigh up strengths and limitations. Discuss is a balanced review with a range of arguments. Both need a conclusion that follows from the arguments you made.

Quick self-test

1. An import sells for 80. A tariff raises its price to 92. Express the tariff as a percentage of the original price.
2. An exporter’s cost is 52 and it sells abroad at 45. By how much is it below cost?
3. A 15% tariff is applied to 2 000 imported units valued at 40 each. Calculate revenue.
4. A tariff costs consumers 40 000 000 and saves 500 jobs. Calculate cost per job.
5. State two arguments for protection that relate to the safety of people.
6. Which argument against protection explains why a sheltered firm may keep high costs?
7. Exports are 1 200 and imports are 1 500. Imports fall by 10%. Find the new balance, assuming exports are unchanged.
8. In the retaliation table of the study guide, why is (4, 4) worse than (6, 6)?
9. State one reason why the government revenue argument and the protection argument conflict.
10. Name one test you can use to judge an infant industry case.

Answers

1. The needed rise is 12 ÷ 80 = 15%.
2. 52 − 45 = 7.
3. Tariff per unit = 0.15 × 40 = 6. Revenue = 6 × 2 000 = 12 000.
4. 40 000 000 ÷ 500 = 80 000 per job.
5. Health and safety; national security (also acceptable: environmental standards, where harm falls on people).
6. Lack of incentive for domestic firms to become more efficient.
7. New imports = 1 500 × 0.9 = 1 350. Balance = 1 200 − 1 350 = a deficit of 150.
8. Both countries protect, and trade shrinks, so each gains less than under free trade.
9. A tariff high enough to stop imports collects little revenue, and a tariff that collects a lot allows imports to continue.
10. Whether the industry’s cost is likely to fall to the world price within a stated time, and whether the tariff has an end date.

Using this in the exam

Paper 1 is an extended response paper with a choice of three questions, and calculators are not allowed. Its parts carry 10 marks (a) and 15 marks (b). Paper 2 is a data response paper with calculators allowed. For a 4.3 argument, build each paragraph in four moves: state the argument, explain the mechanism, apply it to the stimulus or your example, then give one limitation. For evaluation, finish with a judgement that names the condition under which it holds.

Where marks are usually lost

• Listing arguments without explaining the mechanism.
• Writing “protection creates jobs” with no mention of jobs lost elsewhere.
• Calling any low import price dumping.
• Using a percentage tariff in revenue without turning it into a per-unit amount.
• Applying the old import quantity after the tariff.
• Forgetting retaliation in balance of payments answers.
• A conclusion that repeats the arguments and does not weigh them.
• Naming an example without explaining its link to the question.

Official syllabus

IB Diploma Programme Economics guide, first assessment 2022, published by the International Baccalaureate Organization in February 2020. This page covers sub-topic 4.3 of Unit 4, The global economy.