chapter 6 Flashcards
define protectionism
an economic policy or set of measures implemented by a government to shield domestic industries, businesses, and workers from foreign competition
reasons for protectionism
- protecting worker’s jobs
- protecting infant industries
- protecting national security
how does protectionism protect worker’s jobs?
Trade barriers like tariffs and quotas are implemented to safeguard domestic industries and jobs from foreign competition
how does protectionism protect infant industries?
Governments may intervene in trade to shield nascent or developing industries from international competition, allowing them time to grow and become competitive. this promotes industrialization and economic growth
how does protectionism protect national security?
Embargoes are imposed to isolate or restrict trade with specific countries for reasons linked to national security concerns
examples of countries subjected to embargoes
North Korea
Iran
Syria
Sudan
Cuba
due to geopolitical tensions or international disputes.
Economic Rationales for Government Intervention
- fighting unemployment
- protecting infant industries
- promote industrialization
- improving comparative position
how can government intervention in fighting unemployment have a negative effect
other countries may retaliate,impacting export jobs due to
increased component prices: import restrictions can increase prices for components, which can raise production costs for domestic industries
reduced incomes abroad: due to tariffs and import restrictions, demand decreases for goods due to higher prices, and businesses and workers in exporting countries might experience lower incomes or earnings
Non-economic Rationales for Government Intervention
- maintaining essential industries
- promoting acceptable practices abroad
- Maintaining or Extending Spheres of Influence
- Preserving National Culture
why do governments want to maintain essential industries?
Governments protect critical industries (like steel, energy, and technology) during wartime for national defense.
why do governments want to promote acceptable practices abroad?
to pressure foreign governments to change policies on human rights or environmental protection
why do governments want to Maintain or extend Spheres of Influence?
encourage imports from allied nations, aligning trade policies with political interests, which can lead to favorable trade terms
why do governments want to preserve national culture?
to protect cultural heritage and national identity.
types of barriers
- tariffs
- subsidies
- import quota
- embargoes
what are tariffs
taxes imposed on imported goods, making them more expensive than domestically produced goods.
types of tariffs
export tariffs
import tariffs
transit tariffs
what are export tariffs?
imposed on goods leaving the country.
what are import tariffs
imposed on goods entering a country
what are transit tariffs?
Imposed on goods passing through a country
basis of tariffs
per unit basis
value basis
what is per unit basis
Calculated based on the quantity or volume of goods
what is value basis?
Calculated based on the value or price of the goods
purpose of basis of tariffs
They raise the cost of imported products, making them less competitive compared to local alternatives
what are subsidies
financial aids or grants provided by the government to support domestic industries, reduce production costs, or encourage exports
purpose of subsidies
help domestic industries compete by lowering production costs and enabling them to offer goods at competitive prices
what are import quotas?
setting limits on the quantity or value of specific goods that can be imported during a specified period.
purpose of import quotas
control the volume of imports entering a country, limiting foreign competition and protecting domestic industries from being overwhelmed by cheaper imports
what are embargoes
complete bans or restrictions on trade (imports or exports) with one or more countries.
purpose of embargoes
typically used for political reasons, such as isolating a country due to human rights violations, security concerns, or political conflicts
examples of nontariff barriers/direct price influencers
- subsidies
- aids and loans
- customs valuation
- special fees and requirements
define voluntary export restraints
When exporting countries voluntarily agree to limit the quantity of specific goods or services they export to another country
define Licensing Requirements
Requiring importers or exporters to obtain government permission or licenses before engaging in trade activities
define Standards and Regulations
setting specific technical standards, labeling, or testing requirements that products must meet before they can be sold in a particular market. This includes safety, health, and environmental standards.
define Administrative Delays
Delays in customs procedures or inefficient administrative processes that can cause problems for the smooth flow of goods across borders
define Local Content Requirements
setting a specific percentage of domestic content in goods or services. This could limit the use of foreign inputs and favor domestic production
define Import Licensing
Requiring authorization or permits for importing certain goods, making it more difficult or expensive to bring those goods into the country
define Sanitary and Phytosanitary Measures (SPS):
Regulations related to food safety, animal health, and plant health standards that can be used as barriers to trade
define Local Legislation
Laws or regulations favoring domestically made goods in government purchases or setting a percentage of domestic content
define arbitrary standards
Regulations or standards set by governments that may obstruct foreign-made products from entering the market
define Licensing Arrangements
Requirements needed for importers or exporters to obtain government permission or licenses before engaging in trade
define Reciprocal Requirements
Conditions imposed by importing countries where exporters must take merchandise or buy services instead of receiving a cash payment
define Countertrade
Government requirements in the importing country for the exporter to provide additional economic benefits as part of the transaction
example of protecting infant industries
Brazil supported its automobile industry through protectionist measures
example of promoting industrialization
Countries like South Korea and Taiwan achieved rapid growth through export-led industrialization
example of improving comparative positioning
China’s policies, aimed at boosting its manufacturing sector, transformed it into a global manufacturing hub
example of preserving national culture
Canada maintains strict policies to safeguard its cultural sovereignty
why did North Korea face embargoes
Following the Korean War, various countries have imposed embargoes on North Korea due to its nuclear program and human rights violations.
why did Sudan face embargoes?
due to human rights abuses, conflicts in Darfur, and accusations of supporting terrorism
what is direct assistance?
Financial support provided by governments to specific industries or companies to enhance their competitiveness
what are agricultural subsidies?
Financial aid is given to agricultural producers to help them compete or overcome market fluctuations.
what is overcoming market imperfections
Subsidies can address market failures by assisting industries affected by imperfect market conditions.
what is the valuation problem?
Challenges in accurately valuing goods and services due to subsidies
what is tied aid
Foreign aid provided by donor countries with conditions attached, such as requiring the recipient country to purchase goods or services from the donor country
what is untied aid?
Foreign assistance without conditions, allowing the recipient to spend it according to its priorities.
