Free Trade Restrictions Flashcards
What are 8 potential reasons why a government may restrict free trade?
1) To protect both infant and sunset industries, in order to protect employment.
2) To retain self-sufficiency.
3) To correct imbalances on the current account of the balance of payments.
4) To retaliate against another country imposing restrictions.
5) To prevent dumping.
6) To reduce competition from countries with cheap labour and poor labour/environmental laws.
7) To protect strategic industries, such as defence and energy.
8) In order to increase government revenue.
What are infant industries?
New industries, at the early stage of development.
What are sunset industries?
Industries that are in decline.
What is a tariff?
A tax on imported goods (also known as a customs or import duty).
What is a quota?
A limit on the quantity of a certain good that can be imported.
What are non-tariff barriers (give example)?
Any measure, other than a tariff, that acts as a barrier to international trade. E.g. product specifications, health and safety regulations, and environmental regulations.
What are subsidies to domestic producers?
A grant given to domestic producers to lower production costs.
What are 4 methods to restrict free trade?
1) Tariffs.
2) Quotas.
3) Non-tariff barriers.
4) Subsidies to domestic producers.
How do tariffs restrict free trade?
They make imports more expensive, reducing demand.
How do quotas restrict free trade?
They limit the quantity a certain good can be imported, restricting the supply, and raising the price, of said good.
How do subsidies to domestic producers restrict free trade?
They lower costs to domestic producers, meaning their goods and services are cheaper relative to imported goods. This means demand will increase for domestic goods and fall for imported goods.
What are the impacts of restrictions on free trade to consumers (2)?
1) Consumers may see higher prices for imports, due to tariffs.
2) Consumers may face a limited supply of goods where quotas have been imposed.
What are the impacts of restrictions on free trade to governments (short and long run)?
1) In the short-run, governments can benefit from tax revenue from tariffs.
2) In the long-run, protectionism can result in an inefficient industrial sector, reducing future economic growth.
What are the impacts of restrictions on free trade on employment/living standards (short and long run)?
1) Short-run trade restrictions can protect living standards, as many industries, and therefore jobs, are shielded from international competition.
2) Long-run trade restrictions can cause industries to lose competitiveness, causing contraction. This can lead to job losses, reducing living standards.
What are the potential impacts of restrictions on free trade to domestic producers (2)?
1) If production is reliant on imports subject to tariffs, producers will suffer.
2) If sales are affected by imports, then restrictions are beneficial.
