Protection refers to any action by a national government that gives domestic producers an advantage over foreign competitors. In general, the amount of protection between countries has been declining due to a range of factors such as trade agreements which allows countries to benefit from free trade. However, there are many policies that a country can adopt to increase protection of trade such as tariffs and quotas in order to protect the domestic producers. Since WWII, many international organizations and trading agreements have been established to try and breakdown the trading barriers between countries and reduce the amount of protection to increase trade in the global economy.
There are many methods that a government can provide to protect domestic producers from international trade. The first method of protection is a tariff which is a tax imposed on imported goods. This method has been used by governments to increase the price of imports to allow domestic producers to be able to produce goods and sell it without such high competition.
They can increase their supply of goods in the market and also charge a higher price. There is one main effect from this protectionist policy in the global economy and numerous effects on the domestic economy. Since the price of the imported good is higher within the domestic economy, consumers pay higher prices and will be less likely to purchase the imported good. This will lead to lower supplies of imports and less trade within the global economy. As Fig.1 shows, when imports are introduced, the quantity supplies by domestic producers significantly falls however the tariff raises the price of the imports and domestic producers can supply more.
Another form of protectionist policy is a subside. This is a cash payment made by the government to domestic producers to reduce the...