3.1.4 Trade Policy and Negotiations Flashcards
1
Q
protectionism
A
Gov policies that protect domestic economy from imports that compete with domestic industries and reduce unemployment
2
Q
trade barriers
A
Any measure that slows or prevents free trade from taking place eg tariffs, quotas and safety regulations
3
Q
tariffs
A
Taxes placed on specific imported goods
4
Q
quotas
A
Physical limits on the level of specific imports in any one year
5
Q
trade barriers
A
Help individual industries that cannot compete with imports → causes prices to rise, so makes imports more expensive in comparison to domestic products
6
Q
why are trade barriers created
A
- To stop cheaper foreign imports from replacing domestic substitutes, leading to business closures and job losses
- Protect infant industries → small businesses that havent had the chance to grow
- Shielded from foreign competition = can grow big enough to maturity
- Protects jobs and allows new industries to achieve economies of scale
- Protecting infant industries may lead to their being able to export in the future
- The balance of trade is important → reducing imports helps avoid a trade deficit
- Foreign trade can cause job losses → draining the economy, there is a loss of tax revenue and an increase in benefits paid; also politically damaging
- Tariffs raise some tax revenue which can help fund public expenditure; this can be particularly useful for emerging economies
- Protectionist measures are put into place as a means of retaliation against other countries protectionist measures
7
Q
tariffs
A
- Placed on imported goods, increases their price to consumers
- Supply curve shifted left → rises vertically by amount of tariff
- Causes price to rise to P2, quantity bought of the import will fall to Q2
- Consumers will do without, or purchase a domestic substitute instead
- The effectiveness of a tariff depends upon the price elasticity of demand for the import
- Price inelastic → reduction in demand for the import may be limited
- Happens if domestic products are inferior
8
Q
quotas
A
- A quota sets a maximum of a specific product that can be allowed into the country in one year
- Quotas make the supply curve vertical at the quota limit (perfectly inelastic)
- Reduced supply raises the price and causes quantity demanded to fall
- Effectiveness of this will depend on price elasticity of demand for the import
9
Q
other trade barriers
A
- Subsidies can help domestic industries to lower their prices and remain competitive against imports
- Governments may think this is too expensive to be of value
- In the EU subsidies are strictly limited
- Keeping the exchange rate low makes imports more expensive and exports more competitive
- China accused of keeping exchance rates too low
- Makes chinese exports price competitve to higher income foreign markets → increases AD in chinese market
- Imposing regulations such as saftey standards can exclude some imports
- These are usually used to exclude unsafe products, protecting consumers
- Some countries have used them just to avoid stiff competition from particular imports
- Costs of brexit → increased british prices due to leaving EU
- Foreign consumers choose their own domestic products over british ones and products are not fresh as trade is harder and costs are increased
10
Q
why are some protectionist measures detrimental to an economy
A
- Consumers paying more for the imports they buy, they have less time to spend on other things
- Reduces real income and has a negative effect on other domestic spending
- Protection reduces protection, leading to inefficiency and higher prices being charged for products manufactured domestically
- Reduces incomes in exporting countries
- Can provoke retaliation, making it difficult to increase export levels
- Some infant industries are allowed to continue producing rather inefficiently for a long time, charging higher prices to domestic consumers
11
Q
damage to firms from protectionism
A
- Most favour trade lib because protectionism will make it harder for them to tap into new markets
- Few industries that have faced strong competition from imports have at times put pressure on governments to increase protection
- Eg streel industry in US and rust belt
- Maj of businesses want to keep trade barriers low
- Value ease of selling in EU and want to avoid trade wars which might reduce export sales
- Often very speciaised businesses need foreign markets in order to reap economies of scale → home market isnt large enough for this
- Can be damaged by consumer tariffs
12
Q
role of G20
A
- Created in 2008 due to financial crisis threat of destbalising world economy
- All continents repped → biggest develoepd and EE involved with smaller countries
- Meet 1 a year
- Financial and economic stability is a primary concern
- G20 tries to ensure that individual governments policy decisions are compatible with eachother
- Members discuss policy issues including those relating to international organisations (IMF, WTO, World bank)
13
Q
WTO
A
- Facilitates trade agreements so trade barriers can be reduced
- 1994: 123 countries agreed to reductions in tariffs and limited quota use to almost all manufactured products
- Provides a dispute resolution mechanism that helps trading partners to resolve differences
- This is because global supply chains are complex so it needs to organise
- However, can be seen as infavour of developed countries as it was developed by them → asymmetrical power
14
Q
IMF
A
- Exists to promote monetary and economic stability in the global economy
- Advises governments on economic policy
- Provides money for governments that are struggling with trade deficits that threaten to cause very fast falls in their exchange rates
15
Q
world bank
A
- Provides policy advice
- Offers grants and loans eg for infrastructure development, agricultural techniques and health and education facilities
