4.1.6 Restrictions On Free Trade

Question 1

Tariff diagram

Question 2

David Ricardo on trade

Answer 2

nations can gain an international trade advantage when they focus on producing goods that produce the lowest opportunity costs as compared to other nations

Question 3

Ha-Joon Chang

Answer 3

free trade and open markets are the key to prosperity in developing countries.

Question 4

Forms of protectionism

Answer 4

• Tariff
• Quotas
• Non-tariff measures

Question 5

Tariff

Answer 5

a tax on imported good either specific or ad valorem
- e.g 6% on plastic to the UK

Question 6

Quotas

Answer 6

a limit of quantity
- e.g China has a quota on Cambodian rice exports of 300,000 tonnes per year

Question 7

Non-tariff measures

Answer 7

‘subtle’ forms of protectionism
- e.g health and safety/regulatory requirements such as health certificates/customs checks & delays etc

Question 8

Subsidies to domestic producers

Answer 8

Tax credits that are given to domestic producers by govt

Question 9

Tariff example in the EU

Answer 9

• EU common agricultural policy (CAP)- coming into the EU. Aim is to increase price for domestic EU farmers to increase their income (however at the expense of others)
• US imposed tariffs of 35% of imports of tyres from China (upheld by the WTO)

Question 10

Quota diagram

Question 11

Reasons to protect

Answer 11

• To protect domestic firms
• To increase balance of payments
• Govt revenue from tariff revenue
• To prevent dumping
• To improve competitiveness
• Sustainability

Question 12

Tariff evaluation

Answer 12

It can cause geopolitical tensions

Question 13

Reasons to protect (to protect domestic firms)

Answer 13

• encourages people to buy domestically = increase efficiency = increased output = econ growth
• protect infant industries
• protect employment

Question 14

Reasons to protect (balance of payments)

Answer 14

• decreased imports = decrease dependency on other countries
• countries might want to retain self-sufficiency

Question 15

Reasons to protect (to prevent dumping)

Answer 15

countries might sell below their variable costs & this distorts global competition
- e.g China and steel exports

Question 16

US And China tariffs

Answer 16

US put a 25% tariff on steel = retaliation
China then pledged to increase tariffs on 3 bn dollars of US imports

Question 17

Reasons to protect (increase competition)

Answer 17

• retaliate against restrictions imposed by another country
• reduce competition from countries with cheap labour & poor labour/environmental laws

Question 18

Reasons to protect (sustainability)

Answer 18

• Article XX of the GATT (environment/sustainability/public morals/protect)

Question 19

Tariff revenue evaluation 2

Answer 19

• Depends on the extent of the tariff
• e.g if tariff is too low, domestic firms won’t be impacted
• E.g UK aluminium sector at threat of wipeout by post-Brexit anti-dumping duties. Manufacturer warn the tariff of 10.1% is too low & can cause a flood of imports, factory closures & job losses
• Compared to before: EU has set tariffs at 22.1%.
• Hydro Aluminium UK, UK’s largest producer of aluminium accounting for a quarter of the market says it might be forced to close
• by adding low tariffs to increase energy = factory closures & production shutdowns in the country

Question 20

Give two impacts on an increase in import quota

Answer 20

• increase competition in domestic market
• protect firms from cheap imports