Practise protectionism impacts by reading tariff diagrams and judging effects on surplus, welfare loss, prices and retaliation.
Sources for use with Section B
The economy of Iran
Figure 1 Annual real GDP growth rate, Q1 2010–Q4 2020
Figure 2 Monthly inflation rate, as measured by the Consumer Price Index (CPI), January 2010–December 2020
Figure 3 National debt, % of GDP, 2010–2020
Extract A Trade restrictions
When Iran’s President, Mr Hassan Rouhani, was elected in 2013, he promised that his Government would solve Iran’s economic crisis. He said that he would save the country’s economy from collapsing and create positive relationships with the rest of the world. However, when Mr Rouhani resigned as President in June 2021 many economists claimed that his Government had not kept its promises.
During 2013 Mr Rouhani started discussions with the USA and other advanced economies to remove the trade restrictions imposed on Iran’s exports and imports. These restrictions had been imposed in response to Iran’s production of nuclear energy that was above the permitted international limit. After two years of negotiations, Mr Rouhani came to an agreement with these countries and the trade restrictions were gradually reduced. This resulted in an increase in oil exports, Iran’s main source of export revenue.
However, the US Government accused Iran of breaking the agreement and reimposed trade restrictions in 2018. As a result, Iran suffered a significant decline in oil exports and foreign direct investment. This led to a 75% fall in the external value of the country’s currency, the Rial, against the US dollar. Subsequently, there was a fall in Iran’s GDP, an increase in its unemployment rate and an increase in its inflation rate. In 2020 Iran experienced a trade deficit of $11.68 billion, having had trade surpluses between 2005 and 2018.
Extract B Economic development
Since 2018 the Iranian Government has implemented a strategy of diversification into non-oil exports in order to promote economic development. It has focused on a strategy of industrialisation and infrastructure development, particularly by investing in Iran’s telecommunications industries. As a result, the number of people with access to broadband increased from 590 000 in 2014 to 95 million in 2021. The number of people with access to mobile phones also increased from 59.4 million in 2013 to 131 million in 2021. However, the Iranian Government restricts the content that its citizens can access.
In addition, the Government has privatised many state-run companies. Consequently, many Iranians have invested a substantial amount of their savings in the country’s volatile stock market.
With reference to Figure 1, Figure 2 and the last paragraph of Extract A, examine two likely economic effects of trade restrictions reimposed by the US Government on Iran.