4.1.4 Protectionism

Question 1

What is the goal of protectionism?

Answer 1

To increase a nation’s prosperity by increasing the amount exported and/or decreasing the amount imported to the country.

Question 2

What is protectionism the opposite of?

Answer 2

trade liberalisation and free trade

Question 3

What is protectionism?

Answer 3

Protectionism means giving preference to domestic preference to domestic producers by making it harder for foreign companies to export to your country.

Question 4

What does protectionism use?

Answer 4

Protectionism uses trade barriers to make it harder for foreign firms to import goods.

Question 5

What are the 3 types of protectionism?

Answer 5

1) Tarrifs
2) Import quotas
3) Legislation and regulation
4) Domestic subsidies

Question 6

How are tariffs used to implement protectionism?

Answer 6

Imposing a tax on a product being imported automatically reduces its competitiveness, as the tariff will drive up their price. This then reduces the ability of the product to compete with domestically produced rivals

Question 7

What are the benefits of using tariffs for protectionism?

Answer 7

+ Protect jobs nationally
+ indirectly protect other businesses that rely on these firms for trade
+ tariffs raise tax revenue, allowing governments to increase spending on public services and the welfare state

Question 8

What are the drawbacks of using tariffs for protectionism?

Answer 8

• Imposing tariffs pushes up prices, reducing consumers’ ability to buy the product, reducing standards of living
• Tariffs help inefficient firms survive

Question 9

What are quotas?

Answer 9

Is a physical limit on the volume of a product that can be imported in a year.

Question 10

What are tariffs?

Answer 10

A tax imposed on an imported product to allow it to enter a country.

Question 11

What are the two scenarios when tariffs are used?

Answer 11

1) To protect a declining industry

2) To protect a infant industries

Question 12

What are quotas designed to do?

Answer 12

Quotas are designed to protect and encourage domestic producers. If imports are limited, prices will increase. This then encourages domestic producers to increase the supply.

Question 13

How will quotas affect a country’s balance of payments?

Answer 13

Quotas will improve the current account of a country’s balance of payment since domestic firms will look to domestically source their production.

Question 14

What are the benefits of using quotas for protectionism?

Answer 14

+ domestic firms face less competition, improve their competitiveness. This improves profit for shareholders and job security for workers
+ Preventing unemployment theoretically reduces government spending on benefits

Question 15

What are the drawbacks of using quotas for protectionism?

Answer 15

• no extra tax revenue is gained by the government

- they push up prices domestically for consumers

Question 16

What is government legislation?

Answer 16

Legislation relating to consumer protection, environmental protection act as a barrier to imports.

Question 17

What can government legislation lead to?

Answer 17

New government legislation may lead to companies finding that their products become illegal forcing companies to change their product.

Question 18

What is a subsidy?

Answer 18

A subsidy is a payment made by governments to a business producing a certain product or located in a particular area that the government wishes the support.

Question 19

What do subsidies do?

Answer 19

Subsidies act from the bottom up supporting domestic firms instead of making it harder to import.

Question 20

What are subsidies paid in relation to?

Answer 20

The subsidies are paid in relation to the businesses output per unit.

Question 21

What are the benefits of using subsidies for protectionism?

Answer 21

+ Stimulate demand allowing struggling businesses to boost orders allowing investment in more efficient production
+ Subsidies have a positive effect on the balance of payment reducing imports and boosting exports

Question 22

What are the drawbacks of using subsidies for protectionism?

Answer 22

• Artificially inflating profit margins of inefficient businesses can prevent them pushing for efficiency gains that would allow them to compete without the subsidies
• Subsidies must be funded, meaning the government must increases taxation which punishes firms that don’t receive subsidies.