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Protectionism and Ways to Protect the Steel Industry


An economy is facing the shutdown of its steel making industry as a result of cheap imports.

Explain what is meant by ‘protectionism’ and describe two ways in which this steel industry could be protected. [8]


International Trade and Protectionism

CIE AS February 2022

Preview Answer

(Step 1: Define protectionism )

Protectionism involves protecting domestic industries from foreign competition. With globalisation, a country's domestic steel industry may struggle to compete with cheap imported steel produced by foreign firms. Methods of protectionism can be used to protect the domestic steel-making industry from foreign competition.

(Step 2: Explain what is meant by protectionism)

Protectionism restricts free trade and the methods used often seek to increase domestic industries’ relative price competitiveness. Methods of protectionism include tariffs quotas, exchange control, export subsidies, embargos, voluntary export restraints and administrative burdens (‘red tape’).

A country's steel may find it difficult to survive when faced with competition from more established, larger steel foreign firms. Domestic steel-making firms may be too small to have gained economies of scale and charge a lower price for steel compared to foreign suppliers.

Protecting the steel industry may give it time to grow and so benefit from economies of scale and gain a global reputation. This will help a country's steel industry to compete internationally

(Step 3: Describe TWO ways in which this steel industry could be protected)

📖Method 1: A country's steel industry can be protected by imposing a tariffs on steel imports.📖

A tariff is a tax on imports. Tariffs increase the costs of steel production to importers, thus raising the price of foreign steel in the domestic market and lowering the amount of steel imported.

For example, the US imposed import tariffs on steel (25 percent) in 2018. The protection of it's national industry seemed to be one of the main reasons behind the US decision, particularly given the growing intensity of competition in steel industry in the US domestic market and the inability of the US industries to compete against foreign imports.

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