Describe and explain the various forces that affect trading in
Trade protectionism is the practice of shielding domestic producers from foreign competition through the use of tariffs or subsidies; this has both advantages and disadvantages to consider. On one hand it can protect vulnerable industries from more competitive international players who have an unfair cost advantage due to cheaper labour costs or resources; this reduces the risk of job losses in sensitive sectors (Mankiw et al., 2019) while allowing those industries to remain competitive in their home markets.
On the other hand trade protectionism not only benefits those firms receiving support but harms others – opponents argue that they reduce consumer welfare through higher prices resulting from reduced competition as well as reducing efficiency gains from specialisation; furthermore, it can also provoke retaliatory measures from other nations damaging global relations (Wells & Winder, 2015).
In conclusion there are a variety of forces which shape international trading activities with these influencing decisions over whether trade protectionism should be implemented. While providing short term protective benefits for local industry it comes with potential risks relating to reduced consumer choice and increased tension between nations – thus decision makers must carefully weigh up all considerations before enacting any policy changes.