IB DP Economics: Arguments for and against protection

This study guide follows the IB Diploma Programme Economics guide (first assessment 2022, published February 2020), the course examined from the 2022 session onwards. It covers sub-topic 4.3, Arguments for and against trade control/protection. The sub-topic is SL and HL, and the guide marks none of its content as HL only.

The guide sets the individual arguments at analysis depth (AO2) and the comparison of free trade with protection at evaluation depth (AO3). Every figure below is invented: the countries, firms and markets are fictional and illustrative.

Use this page with the revision notes and the practice questions. The course page is the IB DP Economics hub, and the printable checklist lets you tick off each outcome. To find weak spots first, try the free 10-minute diagnostics.

What the guide asks for

Part of 4.3	What you must be able to do	Depth
Arguments for protection	Explain ten arguments and apply each to a market	AO2
Arguments against protection	Explain seven arguments and apply each to a market	AO2
Free trade versus protection	Weigh the two and reach a judgement	AO3

The tools (tariffs, quotas, subsidies, administrative barriers) belong to sub-topic 4.2. Here they are examples of protection, not diagrams to draw. The benefits of trade belong to 4.1: see the study guide for benefits of international trade.

The guide wants real-world examples that are explained, not just named. In this guide the examples are fictional, so practise the habit: say what happened, then say why it supports the argument.

Arguments for protection

For each argument, learn the chain: the problem, how protection answers it, and who gains. Then learn one weakness, because the evaluation marks sit there.

1. Protecting infant (sunrise) industries

A new industry has high costs because its output is small and its workers lack experience. Established foreign rivals have already moved down their cost curves. Protection shelters the young industry until it reaches an efficient scale, after which it can compete unaided.

Worked example. Tarvia is a fictional country whose new solar-panel firm, Helion Works, has an average cost of 80 per panel at 10 000 panels a year. Imported panels sell for 60.

• Loss per panel without protection = 80 − 60 = 20, so the firm would lose 20 × 10 000 = 200 000 a year.
• A tariff that closes the gap must be at least 20, which is 20 ÷ 60 = 33.3% of the world price.
• Suppose experience and scale bring the average cost down to 50 at 40 000 panels. The firm is now 60 − 50 = 10 per panel cheaper than imports. The tariff can be removed.

Weakness: the firm may never reach 50. Governments find it hard to pick winners, and a sheltered firm has little pressure to improve.

2. National security

Some goods matter for defence or survival: weapons, fuel, staple food. A country may protect them so it does not rely on a foreign supplier that could become hostile or unreachable in a crisis. Weakness: the label can be stretched to shelter ordinary industries, and self-sufficiency in a costly good wastes resources that could buy security another way, such as stockpiles.

3. Health and safety

Governments restrict imports that could harm users: contaminated food, unsafe toys, faulty electrical goods. Banning or inspecting them protects consumers who cannot judge quality at the point of sale. This links to asymmetric information in microeconomics. Weakness: the same rules can be used as a disguised barrier, and if the standards are stricter than the evidence requires, consumers pay more for little extra safety.

4. Environmental standards

If imports are made with heavy pollution, a country that charges its own firms for cleaner production is undercut by foreign producers who bear no such cost. Controls on imports, or on goods that harm habitats, remove that disadvantage and discourage a race to the bottom on standards. Weakness: it is hard to measure foreign pollution, and the controls may hurt poorer exporters that cannot afford clean technology.

5. Anti-dumping

Dumping is when an exporter charges a foreign buyer less than the cost of making the good, or less than it charges at home. The aim is to drive out local rivals and then raise prices.

Worked example. A fictional exporter in Brenmar produces at a cost of 52 per unit and sells at 70 at home. In Tarvia it sells at 45.

• Below cost by 52 − 45 = 7, and below its home price by 70 − 45 = 25. This fits the definition on both tests.
• Tarvia imposes an anti-dumping duty of 10, so the import price becomes 55, a rise of 10 ÷ 45 = 22.2%.
• Tarvian producers whose cost is 58 are still undercut by 3, but the gap is much smaller and they survive longer.

Weakness: low prices are not always dumping. A foreign firm may simply be more efficient, and a duty then punishes efficiency and raises prices for buyers.

6. Unfair competition

Some foreign producers gain a cost advantage from government help, such as subsidies, or from weak labour and environmental rules. Protection restores a level field. Weakness: it is difficult to prove what counts as unfair, and your own government may also subsidise its firms.

7. Balance of payments correction

A tariff or quota cuts the volume of imports, which can narrow a current account deficit.

Worked example. Tarvia exports goods worth 700 and imports goods worth 800, a deficit of 100.

• Protection cuts imports by 15%: 800 × 0.85 = 680. The balance becomes 700 − 680 = a surplus of 20.
• If trading partners retaliate and exports fall by 5%, exports are 700 × 0.95 = 665 and the balance is 665 − 680 = a deficit of 15.

Weakness: retaliation can undo the gain. Also, protection treats the symptom. A persistent deficit often comes from low competitiveness or an overvalued currency.

8. Government revenue

A tariff collects money on every import. This matters most where income and sales taxes are hard to collect, which is common in economically least developed countries.

Worked example. Imports are valued at 100 a unit. At a tariff of t per cent, assume import volume M = 1 000 − 20t.

Tariff t	Imports M	Revenue = 100 × (t/100) × M
10%	800	8 000
20%	600	12 000
25%	500	12 500
30%	400	12 000
40%	200	8 000

Revenue rises, peaks near 25% and then falls, because a higher tariff shrinks the tax base. Weakness: revenue depends on people still importing. A tariff that works well as a tax will not protect anyone, and a tariff that protects well raises little.

9. Protection of jobs

Cheaper imports can displace domestic workers. A tariff or quota keeps some of their jobs.

Worked example. A 20% tariff lifts the price of imported shoes from 50 to 60. Households buy 300 000 pairs a year at the higher price, so they pay 10 × 300 000 = 3 000 000 extra. If the policy saves 150 jobs, the cost per job saved is 3 000 000 ÷ 150 = 20 000. If a worker’s wage is 14 000, consumers pay more than the wage to keep each job.

Weakness: jobs lost in export industries through retaliation, and jobs lost in firms that buy the protected input, are easy to forget. Protection delays adjustment instead of helping workers move.

10. ELDC diversification

Economically least developed countries often depend on one or two primary exports, so a fall in the world price hits the whole economy. Protection for new manufacturing can help them build a wider range of output. Weakness: small domestic markets limit scale economies, and weak institutions make it hard to run protection that is temporary and targeted.

Arguments against protection

1. Misallocation of resources

Protection holds resources in industries where the country has a comparative disadvantage and keeps them out of industries where it has an advantage. Total output from the same resources is lower.

2. Retaliation

Other governments may impose their own barriers. Trade shrinks, and both sides lose. The payoff table below uses invented units of national benefit, listed as (Aland, Bland).

	Bland free trade	Bland protects
Aland free trade	(6, 6)	(3, 8)
Aland protects	(8, 3)	(4, 4)

Each country gains most by protecting while the other stays open (8). If both reason this way they reach (4, 4), which is worse for both than (6, 6). This is why retaliation matters in evaluation: the gain from protection assumes no response.

3. Increased costs

Firms that use imported inputs pay more when those inputs are taxed or restricted. Their costs rise, and they may cut output or jobs.

4. Higher prices

A tariff or quota pushes up the price that consumers pay, for imports and usually for domestic substitutes. Low-income households are often hit hardest. In the shoe example, the price rose by 10 ÷ 50 = 20%.

5. Less choice

Fewer imported varieties are available. Consumers and firms have a narrower range of quality and design to pick from.

6. Lack of incentive for domestic firms to become more efficient

Without foreign competition, sheltered firms face less pressure to cut costs or innovate. They can survive with higher costs, and the protection becomes permanent.

7. Reduced export competitiveness

Higher input costs raise the cost of exports. Retaliation closes foreign markets. Exporters then sell less, and the country loses the scale economies and foreign exchange that exports bring.

Free trade versus protection: reaching a judgement

For AO3 you must weigh, not list. Use these tests on any scenario.

1. Short run or long run. Infant industry protection can be justified if it is temporary and has a clear end date. Permanent protection usually is not.
2. Who gains and who loses. Name the groups: producers, workers, consumers, the government, exporters. Concentrated gains and spread-out costs explain why protection is politically popular.
3. Size and evidence. A cost-per-job figure, or the size of a revenue gain, strengthens an argument more than assertion does.
4. Alternatives. A subsidy, retraining, a tax or a regulation may deal with the same problem at lower cost to consumers. Protection is rarely the only tool.
5. Retaliation and country size. A large economy may escape retaliation more easily than a small one.
6. Type of country. An ELDC with a narrow export base and a weak tax system may find the diversification and revenue arguments stronger than a diversified, rich country would.

A short verdict example: “Protection of Helion Works is justified only while its cost stays above the world price, and only if the tariff falls to zero by a stated date. If the tariff stays, the efficiency and price arguments against it dominate.”

Watch the command terms. Explain asks for reasons or causes. Discuss asks for a balanced review. Evaluate asks you to weigh strengths against limitations. The guide says a question cannot use a command term from a higher level than the content, so a single argument is likely to be set with explain, and free trade against protection with evaluate or discuss.

Common errors

• Writing “protection helps the economy” without saying which argument and which group.
• Treating dumping as any low foreign price. It needs a price below cost or below the home price.
• Claiming a tariff always improves the balance of payments, with no mention of retaliation or the exchange rate.
• Giving only the arguments against in a final judgement, with no condition under which protection could be justified.
• Naming an example and not explaining it.

What to do next

Test yourself on the practice questions and keep the revision notes for the last weeks. Paper 1 is an extended response paper in which the (a) part is worth 10 marks and the (b) part 15, and calculators are not allowed. Paper 2 is a data response paper and allows calculators.

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.