4.1.6 Restrictions on Free Trade Flashcards
Describe the infant industry argument
The infant industry is an argument for protectionism.
It is an industry that is just being established within a country.
They need to build up a customer base amd economies of scale - meaning there AC will be higher. Therefore they would not be able to compete with the cheaper international market.
Government has to protect them so they can develop to a competitive level.
Describe the job creation and protection argument in terms of trade restriction
If tariffs / other trade restrictions are places on imports they become more expensive for consumers. Demand for domestic goods rises. Employment rises.
Cheaper international wages like in China (biggest labour force) means lower costs -> cheaper -> domestic firms lose out -> rise in unemployment.
What is “protection from potential dumping”
Dumping is when a company OR country with surplus goods sell them to areas of the world at very low prices (predatory) to gain market share therefore harming the domestic producers in said countries.
Why is terms of trade an argument for protectionism?
If a country buys a large amount of imports for a certain good, this
will increase demand for that good and hence increase the price. This will worsen the terms of trade and so therefore they can buy less imports with the same amount of exports.
Restrictions will reduce supply of the good and lead to a fall in the price received by the importer, so improve the terms of trade.
How is danger of over specialisation an argument for trade restriction?
Some people believe that no country should become totally reliant on another for important products or materials and so it is important to introduce protectionism on these goods to prevent firms and consumers becoming reliant on them.
Explain the Tariff / tariff diagram:
Taxes placed on imported goods making them more expensive and domestic goods more attractive.
Explain Quotas
Quotas are limits placed on the level of imports allowed into a country meaning people are forced to buy domestic goods if they want that good and the quota is already used up.
Explain subsidies to domestic products as a way of restricting free trade?
Payments to domestic producers which lower their costs and help them become more competitive.
What are the non tariff barriers to restricting free trade?
- Embargoes
- Import licensing
- Legal and technical standards
- Voluntary export restraint agreements
What are the impacts of protectionist policies on consumers?
Higher prices and less choice.
What are the impacts of protectionist policies on producers?
- Domestic producers benefit - sell more goods at a higher price.
- However, imports on stuff they need for production could rise (potentially from trade wars).
- Foreign producers will lose out.
What are the impacts of protectionist policies on workers?
- New jobs created in infant industries - higher wages if domestic firms sell and make more.
- However, jobs can be lost - > consumers spend more as tariffs rise prices -> less consumption elsewhere in economy -> less profits for other firms -> unemployment OR more expensive imports from tariffs -> higher costs for domestic firms -> less profits -> more unemployment.
What are the impacts of protectionist policies on governments?
- Creation of tariff revenues.
- Inefficient economies can form in the long run (reduces innovation, competitiveness and potentially AD).
What are the impacts of protectionist policies on Living Standards?
- Tariffs create deadweight welfare loss.
- Trade wars / retaliation.
WhWhat are the impacts of protectionist policies on equity?
It has a regressive effect on the distribution of income as the rise in price affects the poorer members of society far more than the well of.
