4.1.4 Protectionism

Question 1

What is free (open) trade

Answer 1

Economic policy of not discriminating imports and exports to other countries
Buyers and sellers for separate economies may trade without the domestic gov applying tariffs, quotas, subsidies or prohibition on their goods and services

Question 2

Key benefits of free trade (against protectionism)

Answer 2

• countries can benefit from competitive advantage
• business can better achieve economies of scale
• encourages competition and economic efficiency
• enables businesses to grow beyond their domestic borders

Question 3

Competitive advantage

Answer 3

Specialise in goods and services you are relatively best at
Opens up important potential gains from specialisation and trade leading to a more efficient allocation of scarce resources

Question 4

WTO

Answer 4

Deals with global rules of trade between nations

Main function is to ensure trade flows as smoothly, predictable and freely as possible

Question 5

Protectionism

Answer 5

Any attempt by a country to impose restrictions on trade in goods and services
Main aim is to cushion domestic businesses and industries from overseas competition

Tariffs - raises price of imported products and causes a reduction in domestic demand and expansion in supply

Import quotas - volume limits on level of imports allowed into a country
Do not normally bring in any immediate tax revenue for the gov although if they cause domestic production nd incomes expand there will be a beneficial impact on taxes paid

Subsidys - a payment to encourage domestic production by lowering their costs

Question 6

Arguments for protectionism

Answer 6

+ infant industry protection - help infant industries establish themselves, including achieving economies of scale

+ protection of strategic industries - protect jobs, skills, capabilities in key industries to a country

+ protection against import dumping - dumping is a form of predatory pricing which can seriously damage domestic industries

Question 7

Arguments against protectionism

Answer 7

Higher prices for consumers - particularly arising from import tariffs or quotas that restrict market supply

Retaliation from other countries - protectionist measures often result in retaliation such as price wars

Extra costs for exporters - protectionism that becomes widespread in global industries increases the cost facing domestic firms trying to export