3.1.4 Trade policy and trade negotiations Flashcards
What is protectionism?
Protectionism is when a country takes action to protect its industries by restricting free trade with foreign countries
Why might a country take measures of protectionism?
- Protect infant industries
- improve their current account balance of payments
- Protect domestic employment
- prevent the trade of any demerit goods which create a welfare loss in society preventing market failure.
Explain infant industires
Infant industries are unlikely to be able to compete against MNC’s in advanced countries due to the high start up costs they will face. As a result protectionism will occur for these infnat industries but only in the short run as the infant indutries grow, the costs will start to fall and will be able to compete and trade freely.
Explain helping the BoP
If protectionism is placed on certain goods and service when the country trades with another foreign country such as tariffs and quotas, then cost of importing rising reducing frims MPM helping net trade increase and the current account if in a defecit.
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Explain protecting domestic employment
Protectionism may occur to preotcet domestic employment and reduce the “brain drain” in an economy where the workers may flee to worked for MNC’s in more developed countries this was seen in India with doctors going to work in the UK. Also helps infant industries with emplloyment and be more competitive with a greater sized workforce.
What measures of protectionism may take place?
The use of tariffs to reduce th elevels of imports as prices rise as its an import tax. The point of tariffs are to reduce import demand and increase domestic demand instead.
Or quotas may be used where only a fixed amount of imports can enter a country
How may govenrment legislation be used as a protectionism measure?
The government can implement complex health and security checks for the good sthat are being imported into the country. This causes for costs to increase reducing the MPM
How can government subisides to domestic firms reduced imports?
Through government grants and subsidies it causes for domestic supply to increase which means price falls making domestic good smore competitive and attractive.
What are impacts of pretoectionism?
Can cause govenrment failure.
Tariffs are regressive and thus will mostly impact those on low and fixed incomes causing for a greater wealth inequality and divide. Howeve can be argues the tax gained from tariifs become government revenue thus can be used to redistribute income fairly.
Firms have no impact/incentive to reduce costs and be productively efficient as competition in reduced through the restrictions. Also, the inteventoin in the global market can distort market mechanims causing for allocaive inefiiciency.
Consumers face higher prices and less variety.
What is the role of the WTO?
What might conflict WTO’s aim?
WTO aims are to promote trade between countries by reducing trade barriers.
Trading blocs might distort world trade or adversely affect those who do not belong to them.
A common external tariff contradicts the WTO’s principles, since although there is free trade between members, protectionist barriers are imposed on those who are not members reducing free trade.
What is the role of the World Bank?
The main role and aim of the World Bank is to help support economic progress and social progress for its membe rstate. It dos this by funding loans to countries in orde rto help them increase proudctivity. Also tries to reduce levels of poverty in that country.
What is the role of the IMF?
Promote financial stability and economic growth. Also encourages trade and tries to reduce poverty.
