4.1.4 - Protectionism Flashcards
1
Q
What is protectionism
A
- Protectionism is the theory or practice of shielding (or protecting) a country’s domestic industries from foreign competition by taxing imports, imposing quotas or passing laws
2
Q
What is Protection for domestic industries
A
- The main reason that a government will seek to put in place protectionist policies is to protect their domestic industries
- For example the French government will seek to protect French industries so may place tariffs and quotas on imports of wine and cheese
- This stops the French markets being flooded with cheap imports, which will affect the sales of the domestic businesses
3
Q
What is a tariff
A
- A tariff is a tax placed on an import to increase its price and decrease its demand
- Tax can be imposed by governments to raise revenue and to restrict imports
- A tariff is likely to raise the final price to the consumer – therefore a fall in demand for the goods
- Consumers will switch consumption to domestic goods
4
Q
What are the impacts of tariffs on business
A
- Imposing a tariff will help a country to:
- Protect their fledgling (new) domestic industries from foreign competition
- Protect their aging and inefficient industries from foreign competition
- However:
- If a business faces having to pay stiff tariffs they may have to reduce production and this can mean job losses
5
Q
What are the 3 reasons tariffs are imposed
A
1 To raise tax revenue
Poorer countries may impose heavy tariffs on imports to raise much needed funds for healthcare and education
#2 For environmental reasons Tariffs are sometimes only placed on goods that have negative externalities e.g. cigarettes (sin tax)
#3 Protectionism
6
Q
What are the advantages of tariffs
A
- Domestic produced goods do not incur the tariff and so are likely to be cheaper
- Tariff protection allows domestic businesses to sell more because they gain a price advantage compared to imports
- Domestic producers gain price advantage
- It can ensure better job security
- It can raise important tax revenue for government which can be spent possibly on infrastructure
7
Q
What are the disadvantages of tariffs
A
- Some products, even with tariff cost added, do not put off potential customers willing to pay for unique or unusual imported products
- Tariffs may just increase the costs to consumers
- Other countries may retaliate by imposing their own tariffs on imports
8
Q
What is an import quota
A
- A quota is a physical limit on the quantity of goods imported or exported for example only 10,000 units a year
- Imposing a limit on the quantity of goods that are imported will increase the share of the market available for domestic products (made in the home country)
9
Q
Why are quotas imposed
A
- When an import quota is set, it allows a country to be sure of the amount of the good imported from the foreign country
- When there is a tariff, if the supply curve of the foreign country is unknown, the quantity of the good imported may not be predictable, quotas are predictable because the actual amount is known
10
Q
What are the uses of import quotas
A
- Import quotas are imposed to protect jobs of domestic producers
- Import Quotas are also imposed as a bargaining chip to be used in negotiations on trade
- Other uses for quotas are to protect strategic industries such as defence and agriculture. In market environments where imports are on the rise, quotas are more protective than tariffs.
11
Q
What are the advantages of import quotas
A
- # 1 protects domestic industries e.g. USA calling for quotas on steel imports
- # 2 safeguards jobs in domestic industries
- # 3 Benefit to the customers, the price of imported goods rise so domestic goods appear cheaper and better value in comparison
12
Q
What are the disadvantages of import quotas
A
- When one country uses quotas, its trading partners do the same and the end result is less exporting opportunity for all producers and higher prices for all consumers.
- Quotas are also complex for the country using them. They require a lot of paperwork indicating exact amounts of products for each country facing a quota.
- It is also difficult to measure the precise degree of protection quotas offer
13
Q
What is a government legislation trade barrier
A
- Sometimes a country will not be able to set tariffs or quotas because of trade agreements or membership of a trade bloc, this means they need to come up with other ways of protecting their domestic industries from floods of cheap imports
- They can do this through legislation e.g. No fakes, safety of toys etc.
14
Q
What are the advantages of government legislation trade barrier
A
- Government legislation can be a very powerful tool in preventing fake imports into countries
- For example any toys imported into the UK must have a CE mark
- This indicates that the product conforms to EU safety regulations
- The added benefit is it means customers can trust the products that they are buying are genuine
15
Q
What are the disadvantages of government legislation trade barrier
A
- Every import into the UK cannot be checked 2% are fake (according to the OECD) so no matter how many laws a country has it cannot prevent ALL fakes from arriving on their shores
- The profits go to organised crime and can be in any sectors including medicine, machinery and clothing
