4.2 - Signposting

Question 1

What is Protectionism?

Answer 1

Protectionism - Any barrier that restricts free trade to protect domestic producers from foreign competition

Question 2

Reasons for Protectionism/Costs of Trade

Answer 2

1. Infant Industry Argument
2. Protect Against Dumping
3. Protect Against Unemployment
4. Protect Product Standards
5. To compete with low cost labour abroad
6. To eliminate a current account deficit and promote economic growth
7. To Raise Government Revenue

Question 3

Evaluation for this point: 1. Infant Industry Argument

Answer 3

1. Imposing protectionism for this reason may fail in the medium to long term due to complacency and a protectionist dependency.
2. Whether developing countries have the internaitonal power to enact such imposing protectionism on developed countries without risking relatiatory protectionism is a big assumption

Question 4

Evaluation for this point: 2. Protect Against Dumping

Answer 4

1. Dumping is extremely difficult to prove

Question 5

Evaluation for this point: 3. Protect Against Unemployment

Answer 5

1. If the industry is already in decline protectionism is only delaying the inevitable with costs of protectionism outweighing the benefits.

Question 6

Evaluation for this point: 4. Protect Product Standards

Answer 6

1. This is perfectly valid as long as there is scientific evidence backing it up
2. For developing countries who must meet these tougher standards when exporting primary commodoties to developed countries, costs of production will inevitably increase, potentially taking away their comparative advantage

Question 7

Evaluation for this point: 5. To compete with low cost labour abroad

Answer 7

1. Using protectionism for this reason will significantly worsen the world allocation of resources as it promotes more inefficient domestic production

Question 8

Evaluation for this point: 6. To eliminate a current account deficit and promote economic growth

Answer 8

1. The biggest problem with using protectionism to close a trade deficit is retaliation of trading partners

Question 9

Evaluation for this point: 7. To Raise Government Revenue

Answer 9

1. Whilst tax revenue will increase when tariffs are imported goods reducing their consumer surplus and potentially burdening the poor on which are subject to the tariff.

Question 10

Arguments Against Protectionism

Answer 10

1. The biggest problem with using protectionism to close a trade deficit is likelihood of retaliation of trading partners.
2. Protectionism such as tariffs will increase prices for consumers and create deadweight welfare loss of conusmer surplus
3. Protectionism goes against the aims and principles of the WTO.
4. Protectionist measure such as tariffs and quotas can be inflationary and lead to a conflict of government macroeconomic objectives.
5. Protectionism will worsen the world allocation of resources
6. Certain forms of protectionism are very costly
7. Price inelastic demand and supply for the imported product