4.1.4 Protectionism- Tariffs

Question 1

What is protectionism?

Answer 1

• When a government seeks to protect domestic industries from foreign competition

Question 2

What is a tariff?

Answer 2

• A tax placed on imported goods from other countries
• A tariff increases the price of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses

e.g. if a tariff is placed on british cheese imported to the USA American customers are now more likely to purchase American cheese

Question 3

What are the benefits and disadvantages of tariffs?

Answer 3

Benefits:
- They protect infant industries so they can eventually become more competitive globally
- An increase in government tax revenue
- Reduces dumping by foreign businesses as they cannot sell below the market price

Disadvantages
- Increases the cost of imported raw materials which may affect businesses who use these goods for production, leading to higher prices for consumers

• Reduces competition for domestic firms who may become more inefficient & produce poor quality products for customers
• Reduces consumer choice as imports are now more expensive & some customers will be unable to afford them

• ‘dumping’ where a business sells their products abroad in export markets at significantly low prices

Question 4

What is an import quota?

Answer 4

• A government imposed limit on the amount of a particular product allowed into the country

Question 5

What are the benefits & drawbacks of import quotas?

Answer 5

Benefits:
- Increase Domestic firm demand, in order to meet extra the demand, domestic businesses may need to hire more workers which reduces unemployment & benefits the wider economy
- Limits foreign competition, allowing local businesses to grow & thrive.
- Ensures a country is not too dependent on foreign suppliers, reducing economic vulnerability.
- Foreign countries view a quota as less confrontational to their business interests than tariffs

Disadvantages:
- Quotas limit the supply of a product & whenever supply is limited, the price of the product rises
- They may generate tension in the relationship with trading partners
- Domestic firms may become more inefficient over time as the use of quotas reduces the level of competition

Restricting the physical amount of imports means that domestic businesses face less competition & benefit from a higher market share

Question 6

What are the other two things governments use to protect domestic businesses?

Answer 6

• Legislation- This involves creation of new laws by a government
• Subsidies- An amount of money paid to the firm by the government for each unit produced

these along with the others are used to help protect domestic businesses (businesses that operate within the country) e.g. local supermarkets

Question 7

How does government legislation work?

Answer 7

• Governments can impose laws to restrict certain imports to protect customers & businesses

Imports may need to meet strict regulations in order to be allowed into the country

There is a UK ban on imported chicken from the USA due to the practice there of using chlorine to wash chicken carcasses

Question 8

What are the benefits & drawbacks of government legislation?

Answer 8

Benefits:
* Allows domestic firms to grow as they have limited competition from businesses abroad

Drawbacks:
* Can lead to retaliation from countries facing the legislation

Question 9

How do domestic subsidies work?

Answer 9

• Payments are given to domestic businesses to help lower costs of production

Question 10

What are the benefits & drawbacks of subsidies?

Answer 10

Benefits:
* Reduced costs can lead to lower prices making domestic firms more competitive in international markets as their exports may be cheaper
* Businesses remain competitive & this helps to protect jobs in industry

Drawbacks:
- Businesses may become inefficient/ too dependant as they know their costs are being subsidised