4.1.6. Restrictions on free trade Flashcards
What is protectionism?
Refers to government policies that restrict international trade to shield domestic industries from foreign competition. These measures aim to support local businesses and preserve jobs.
What are the reasons for protectionism?
-Infant Industries are newly established firms in the early stages of development so protectionism can protect them as they would be unlikely to succeed without. Once they are established support is removed
-Sunset industries are similar to infant but are the other end of the life cycle and so govt helps to limit economic damage that would occur if they closed abruptly
-Strategic industries like energy, defense and agricultural are essential to self-sufficiency of a country
- To stop dumping which is anti-competitive and can harm a country’s industries
- When firms outsource employment can cause structural unemployment
-When there’s a current account deficit protectionism can balance this out
-Countries offering cheap labour due to poor conditions and regulations can be changed by protectionism
What are infant industries?
Newly established industries that are in the early stages of development and not yet capable of competing with well-established foreign competitors.
What are Sunset Industries?
Declining industry which will likely become extinct
What is dumping?
Occurs when foreign firms sell products at unfairly low prices in foreign markets- and usually below their normal cost of production
What is a current account deficit?
When imports> exports and so the amount of money leaving country is greater than that entering
What are types of Protectionism?
-Tariffs
-Subsidies
-Quotas
-Administrative barriers
What is a tariff?
A tax on imported goods/ services (customs duty). Domestic producers/ retailers have to pay the tariff when the good/ service crosses the border into the country which raises the cost of production for domestic firms. This extra cost often comes in the form of higher prices for consumers
What does a tariff look like on a supply and demand graph?
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What is a quota?
A physical limit on imports which is usually set below the free market level of imports.
How does a quota benefit domestic firms?
Allows domestic firms to supply more due to the lower level of imports and likely increase in demand due to shortage of supply. This could result in increased employment for domestic firms
What is a subsidy? Who is it given to?
Subsidy is an amount of money paid to the firm by the government for each unit produced. It lowers the cost of production for domestic firms
What does a subsidy allow domestic firms to do?
-Increase output
-Lower prices
-Lower prices allows them to become more competitive internationally
-Level of exports increases
-Increased output results in increased domestic employment
What are some other examples of non-tariff barriers?
-Health and safety regulations
-Product specifications
-Environmental regulations
-Product labelling
How do protectionist policies impact domestic producers?
Makes imported goods more expensive so consumers are more likely to buy locally made products. This increases producers market share, helps them sell more products and helps them grow their revenue. Protects from foreign comp and encourage more local jobs so less unemployment. Can charge higher prices. Producer surplus increases
How do protectionist policies impact domestic consumers?
Causes higher prices as extra tariff costs added onto imported goods. This results in fewer choices as foreign producers may be forced to pull out due to higher prices.
How do protectionist policies impact government?
Increases gov revenue as tariffs are taxes. This money goes to fund public services and protects key industries and supports employment. Can however lead to inefficient economy which stifles growth
How do protectionist policies impact standard of living?
Standard of living for consumers worsen as the value of their incomes is eroded as they are paying higher prices. However, Domestic firms who benefit from increased production may increase employees wages which increases standard of living.
How do protectionist policies impact equality?
Workers who have been experiencing structural unemployment due to foreign competition will feel the tariff results in them being treated more fairly
