3.1.4 trade policy and trade negotiations Flashcards
What is protectionism?
The act of guarding a country’s industries from foreign competition, by imposing restrictions on free trade.
Why would trade deficit reduce if a country employed protectionist measures?
They will be importing less due to tariffs and quotas on imports.
Why might governments use protectionist measures? [4]
- Can correct market failure as it can deal with demerit goods
- Might want to protect domestic jobs
- Reduces trade deficit
- Might be retaliation to other trade barriers in other countries.
What are tariffs?
Taxes on imports.
Why may exports decrease for a country with tariffs?
It could lead to retaliation from other countries.
What is the impact of tariffs?
Quantity demanded of domestic goods increases, whilst quantity demanded of imports decreases.
They also result in higher prices for consumers and a loss in consumer surplus.
What is a quota?
It limits the quantity of a foreign produced good that is sold on the domestic market. It sets a physical limit on a specified good imported in a set amount of time.
What is the impact of quotas on domestic consumers?
It leads to a rise in the price of the good, so they become worse off.
What does a subsidy do?
It encourages domestic production to increase, making domestic goods relatively cheap compared to imports. Can be shown in a shift to the right on the supply curve.
What are some examples of non-tariff barriers? [3]
- Voluntary export restraints (VERs)
- Embargoes
- Excessive administrative burdens (red tape)
What are Voluntary Export Restraints (VERs)?
When 2 countries make an agreement to limit the volume of exports to one another over a period of time. They are used when governments want to protect domestic industries from competing imports.
Usually suggested by the exporting country, to avoid even less flexible trade barriers being imposed.
What are embargoes?
Complete ban on trade with a particular country, usually politically motivated.
What are excessive administrative burdens?
They increase the cost of trading discouraging imports, as it makes it difficult to trade with the country.
Why does protectionism distort the market and lead to loss of allocative efficiency?
It prevents industries from competing in a competitive market, and there is a loss of consumer welfare. Consumers face higher prices and less variety.
By firms not competing in a competitive market, firms have little or no incentive to lower their costs of production.
Why are tariffs regressive?
They are most damaging to those on low and fixed incomes, which could increase income and wealth inequality.
What is the G20?
Compromises of 20 major economies.
Who are in the G7?
- US
- UK
- Canada
- France
- Germany
- Italy
- Japan
Why was the G20 formed?
With the aim of promoting international financial stability and discussing important policy issues.
How much of gross world product does the G20 account for?
85%.
Who are often excluded from the G20?
Developing countries, and it does not include a majority of countries.
Why may it be difficult to coordinate policies in the G20?
There are different economic interests and situations within the countries.
What are the negatives of trading blocs?
- Might distort world trade
- Could adversely affect those who do not belong to them
- Could be inefficient allocation of resources as a result of policies such as the EU CAP
Why do common external tariffs contradict the WTO’s principles?
Although there is free trade between members, protectionist barriers are imposed on those who are not members.
What do some countries argue about the WTO?
That it is too powerful and ignores the problems of developing countries, which could be because developed countries do not trade completely freely with developing countries, limiting their ability to grow.
