Chapter 69- Protectionism

Question 1

What are the protectionist measures?

Answer 1

• Protect jobs: They may be used if domestic industries need protection from overseas competitors to save jobs. Unemployed is undesirable and a government may be criticised if jobs are being lost because of cheap imports
• Protect infant industries: It is often argued that infant industries need protecting from strong overseas rivals until they can grow, become established and exploited economies of scale.
• Raise revenue – a government can raise revenue if it imposes tariffs on imports. This money can be spent on government services to improve living standards
• Dumping- Protectionist measures can be used to prevent overseas producers from dumping their products at very low prices, which could force domestic producers out of business. E.g. the USA dumping surplus food in Haiti
• Improve the balance of payments: A country might need to use trade barriers because it has a large balance of payments deficit.

Question 2

Methods to restrict trade:

Answer 2

• Tariffs- the imposition of tariffs will have a number of effects: goods become more expensive as a result of the tariffs and consumers may switch to domestically produced goods – tariffs raise revenue for the gov.
• Quota- a quota will result in a restriction on the quantity of goods imported into a country, which will result in an increased price for those goods. This will mean that consumers will switch to domestic producers.
• Gov legislation- governments can pass laws which specially relate to rules and regulations regarding imported goods e.g. health +safety. Goods that fail to reach cultural or environmental standards may also face administrative barriers.
• Subsidies- This involves giving financial support, such as grants, interest- free loans or tax breaks, to exporters or domestic producers that face competition from imports. If subsidies are given to domestic producers, this will lower prices for consumers because subsidies reduce production costs and increase supply. This forces equilibrium prices down. If subsidies are given to exporters it makes it easier for home business to break into foreign markets.

Question 3

Administrative Barriers

Answer 3

Rules and regulations that make it difficult for importers to penetrate on overseas market.

Question 4

Dumping

Answer 4

where an overseas firm sells large quantities of a product below cost in domestic market.

Question 5

Embargo

Answer 5

A complete ban on international trade- usually for political reasons.

Question 6

Import quota

Answer 6

A physical limit on quantity of imports allowed into a country.

Question 7

Infant industries

Answer 7

New industries that have yet to establish themselves.

Question 8

Protectionism

Answer 8

An approach used by a government to protect domestic producers.

Question 9

Subsidy

Answer 9

financial support given to domestic producer o help compete with overseas firms.

Question 10

Trade barriers

Answer 10

measures designed to restrict trade

Question 11

Problems will trade barriers:

Answer 11

• a reduction in international trade
• retaliation – which could result in a trade war
• trade division
• The impact of these restrictions depends upon the elasticity of
demand on these goods.