2.1 Part 2 Flashcards
Globalisation-
Exports and imports in and out of countries around the world (international).
Advantages of Globalisation:
Inward investment by TNCs helps countries by providing new jobs and skills for local people.
TNCs bring wealth and foreign currency to local economies when they buy local resources, products and services. The extra money created by this investment can be spent on education, health and infrastructure.
The sharing of ideas, experiences and lifestyles of people and cultures. People can experience foods and other products not previously available in their countries.
Globalisation increases awareness of events in far-away parts of the world. For example, the UK was quickly made aware of the 2004 tsunami tidal wave and sent help rapidly in response.
Globalisation may help to make people more aware of global issues such as deforestation and global warming - and alert them to the need for sustainable development.
Disadvantages of Globalisation:
Cultural barriers Bad reputation Currency Paperwork Licenses and permissions Financial risk
Protectionism-
Protectionism involves any attempt by a country to to impose restrictions on trade in goods and services. The main aim of protectionism is to cushion domestic businesses and industries from overseas competition and prevent the outcome resulting solely from the interplay of free market forces of supply and demand.
Advantages for protectionism:
Infant or Fledging industry Argument-Certain industries have a possible comparative advantage but have not yet exploited sufficient economies of scale to bring their unit costs down to competitive levels. Short-term protection might allow an infant (or fledgling) industry to develop a cost advantage at which point protection could be relaxed, leaving an industry to trade more freely on the international market. Of course, the risk is that these controls become semi-permanent.
Protection of Strategic Industries-A government may wish to protect employment and investment in strategic industries, although value judgments are involved in determining what a strategic sector is.
Protection against Dumping-Dumping is a type of predatory pricing behaviour and can often be a concern for domestic firms facing overseas competitors who are looking to offload their spare production in international markets at very low prices. Goods are dumped when they are sold for export at less than their normal value. The normal value is usually defined as the price for the like goods in the exporter’s home market. In the short term, consumers benefit from lower prices of the foreign goods, but in the longer-term, persistent undercutting of domestic prices can force a home-based industry out of business and then allow the foreign firm to establish itself as a monopoly. Once this is achieved the foreign owned monopoly is free to increase their prices and exploit the consumer. Protection via tariffs on ‘dumped’ goods can be justified to prevent long-term exploitation of the consumer.
Disadvantages for protectionism:
Market Distortion and loss of Economic Efficiency-Protectionism can be an ineffective and costly means of sustaining jobs and supporting domestic economic growth:
Higher Prices for Consumer-Import tariffs in particular push up prices for consumers and insulate inefficient domestic sectors from genuine competition. They penalise foreign producers and encourage an inefficient allocation of resources both domestically and globally.
Reduction in Market Access for Producer-Export subsidies depress world prices and damage output, profits, investment and jobs in many lower and middle-income developing countries that rely heavily on exporting primary and manufactured goods for their growth.
Extra Costs for Exporters-For goods that are produced globally, high tariffs and other barriers on imports act as a tax on exports, damaging economies, and jobs, rather than protecting them. For example, a tariff on imported steel can lead to higher costs and lower profits for car manufacturers and the construction industry.
Adverse Effects on Poverty-Higher prices from tariffs tend to hit those on lower incomes hardest, because the tariffs (e.g. on foodstuffs, tobacco, and clothing) fall on products that lower income families spend a higher share of their income. Tariffs can therefore lead to a rise in relative poverty.
Retaliation & Trade Wars-There is the danger that one country imposing import controls will lead to retaliatory action by another.
Protectionism Measures: is
Tariffs-A tariff a tax or duty that raises the price of imported products and causes a contraction in domestic demand and an expansion in domestic supply. For example, until recently, Mexico imposed a 150% tariff on Brazilian chicken. The United States has an 11% import tariff on imports of bicycles from the UK.
Quotas-Quotas are quantitative (volume) limits on the level of imports allowed or a limit to the value of imports permitted into a country in a given time period. For example, until 2014, South Korea maintained strict quotas on imported rice. It has now replaced a quota with import tariffs designed to protect South Korean rice farmers. Quotas do not normally bring in any immediate tax revenue for the government although if they cause domestic production and incomes to expand, there will be a beneficial impact on taxes paid.
Export subsidies-A subsidy is a payment to encourage domestic production by lowering their costs. Soft loans can be used to fund the dumping of products in overseas markets. Well known subsidies include Common Agricultural Policy in the EU, or cotton subsidies for US farmers and farm subsidies introduced by countries such as Russia. In 2012, the US government imposed tariffs on Chinese manufacturers of solar panel cells, judging that they benefited from unfair export subsidies after a review that split the US solar industry.
Domestic subsidies-Domestic subsidies involve government help (state aid) for domestic businesses facing financial problems e.g. subsidies for car manufacturers or loss-making airlines.
