4.1.4 - PROTECTIONISM

Question 1

What is PROTECTIONISM?

Answer 1

the theory of PROTECTING a COUNTRY’S DOMESTIC INDUSTRIES from FOREIGN COMPETITION by TAXING IMPORTS

Question 2

What is the main reason for PROTECTIONISM?

Answer 2

the govt wants to PROTECT the DOMESTIC BUSINESSES + INTEREESTS

Question 3

What are 3 TYPES of PROTECTIONISM?

Answer 3

• Tariffs
• Import Quotas
• Legislation

Question 4

What is a TARIFF?

Answer 4

is a TAX PLACED on IMPORT to INCREASE ITS PRICE and DECREASE its DEMAND
- imposed to RAISE REVENUE and RESTRICT IMPORTS

Question 5

What is the IMPACT of TARIFFS ON BUSINESS? 3

Answer 5

• HELPS PROTECT a Countries DOMESTIC INDUSTRIES from FOREIGN COMPETITION
• PROTECTS their AGING and INEFFICIENT INDUSTRIES from Foreign Competition
• However - if BUSINESS faces PAYING STIFF TARIFFS -> might have to REDUCE PRODUCTION -> JOB LOSSES

Question 6

What are 3 REASONS why TARIFFS are IMPOSED?

Answer 6

(1) - RAISE TAX REVENUE - poorer countries impose heavy tariffs for Much Needed funds for Healthcare and Education
(2) ENVIRONMENTAL REASONS - goods that have Negative Externalities e.g. cigarettes
(3) PROTECTIONISM

Question 7

What are 3 ADVANTAGES of TARIFFS?

Answer 7

• DOMESTIC GOODS are LIKELY to be CHEAPER ( don’t have tariffs ) - allows DOMESTIC BUSINESS to SELL MORE - PRICE ADVANTAGE
• ensure BETTER JOB SECURITY
• IMPORTANT TAX REVENUE for Govt

Question 8

What are 2 DISADVANTAGES of TARRIFS

Answer 8

• SOME products even with added tariff , DON’T PUT OFF potential CUSTOMERS WILLING to PAY for UNIQUE IMPORTED PRODUCTS
• may INCREASE the COSTS to CONSUMERS

Question 9

What is an IMPORT QUOTA?

Answer 9

a PHYSICAL LIMIT On the QUANTITY of GOODS IMPORTED or EXPORTED
e.g. 10,000 units a year

Question 10

What EFFECT do IMPORT QUOTAS have?

Answer 10

INCREASES the SHARE of MARKET AVAILABLE For DOMESTIC PRODUCTS

Question 11

What are 3 USES of IMPORT QUOTAS?

Answer 11

• imposed to PROTECT JOBS of DOMESTIC PRODUCERS
• imposed as a BARGAINING CHIP to be USED in NEGOTIATIONS of TRADE
• PROTECT STRATEGIC INDUSTRIES ( e.g. agriculture ). In MARKET environment Where IMPORTS are on the RISE, QUOTAS are MORE PROTECTIVE than Tariffs

Question 12

What are 3 ADVANTAGES of IMPORT QUOTAS?

Answer 12

• PROTECTS DOMESTIC INDUSTRIES
• SAFEGUARDS JOBS in DOMESTIC Industries
• BENEFITS to the CUSTOMERS - the PRICE of IMPORTED GOODS RISE -> DOMESTIC GOODS appear CHEAPER, BETTER VALUE

Question 13

What is 1 DISADVANTAGE of IMPORT QUOTAS

Answer 13

• when COUNTRY uses QUOTAS, its TRADING PARTNERS DO the SAME -> end result = LESS EXPORTING OPPORTUNITIES For All Producers and HIGHER PRICES for all CONSUMERS

Question 14

What is GOVERNMENT LEGISLATION?

Answer 14

LAWS set to PROTECT DOMESTIC INDUSTRIES
when a COUNTRY CANNOT set TARIFFS or QUOTAS BECAUSE of TRADE AGREEMENTS

Question 15

What is 1 ADVANTAGE of LEGISLATION?

Answer 15

• can be very POWERFUL in PREVENTING FAKE IMPORTS into COUNTRIES - adds to Customer Trust - Genuine Products

Question 16

What is 1 DISADVANTAGE of LEGISLATION

Answer 16

• CANNOT PREVENT ALL FAKES ARRIVING -> NOT ALL IMPORTS can be CHECKED