Types of Trade Restrictions (Cambridge (CIE) IGCSE Economics): Revision Note

Before the tariff, these firms struggled to compete with cheaper imports

After the tariff, foreign goods become more expensive, allowing domestic firms to increase their output and market share

Higher demand for local production may lead to more jobs in that industry and lower unemployment

These producers rely on imported goods as raw materials

The tariff raises their costs of production, which can lead to lower output, higher prices for final goods, and possibly job losses in dependent industries

Tariffs reduce their price advantage, making them less competitive in the domestic market

Export volumes fall, reducing their revenues

From a global perspective, resources may now be allocated less efficiently, as more efficient producers are being restricted

Before the tariff, consumers had access to cheaper imported goods

After the tariff, prices rise and consumer choice is reduced

Real income falls and standards of living decline, particularly affecting low-income households

The government earns tax revenue from the tariff on each imported unit.

However, there may be political pressure if the policy raises consumer prices or causes tensions with trade partners

Tariffs can also risk retaliatory measures from affected countries

Subsidies reduce costs of production, allowing firms to produce more at lower prices

Output increases, and firms become more competitive both domestically and internationally

Face stronger competition from domestic firms with lower prices due to subsidies

May lose market share and struggle to export to the subsidising country

Benefit from lower prices, as subsidies help firms reduce selling prices

Greater affordability means consumers can buy more with their income

Subsidies represent a cost to the government budget

There is an opportunity cost — the money could be used for other public services like healthcare or education

Improves, especially for lower-income households, as goods become more affordable and jobs may be protected in supported industries

Subsidies help level the playing field for domestic firms competing with foreign producers who may have cost advantages or government support of their own

Able to increase output as they face less competition from imports

Higher market prices raise their revenue

May lead to increased investment and job creation

Face reduced access to the domestic market, lowering total output

However, those that do export under the quota can benefit from higher prices than under a tariff system

Suffer from higher prices and reduced choice

Real income is affected by the increased cost of goods, lowering living standards

Does not earn tariff revenue from the quota itself

Might gain some corporation tax later if domestic firms grow and report higher profits

Likely to fall for consumers, as more income is spent on fewer or more expensive goods

Helps domestic firms compete more fairly, especially if foreign producers are highly efficient or subsidised

Increases output due to less foreign competition

They are unable to legally trade with the country running the embargo

They lose sales and profits

They may go out of business or need to reduce their number of workers

Prices will rise – and in some cases the product may no longer be available at all

The government has to spend money enforcing the embargo