lesson 4: protectionism and trade blocs Flashcards
what is protectionism?
the restriction to international trade using barriers to trade
what can tariffs also be called?
customs duties
what are the two kinds of tariffs?
ad valorem (percentage of the price of the import is paid)
specific (tax is paid per unit of weight)
what are examples of protectionist barriers?
tariffs
subsidies
quotas
embargoes
non tariff measure (eg health standards)
what is a quota?
limit to the amount of imports
what is an embargo?
complete ban on the export or import of a product or on trade with a particular country
what do subsidies enable?
relatively high cost domestic firms can undercut more efficient foreign firms in the domestic market with the help of the government
what is the case for protectionism?
raising tax revenues
protecting jobs
protecting specific industries
strategic industries
anti-dumping
why is the protectionist measure to raise tax revenues important?
to help finance government activities
why is the protectionist measure to protect jobs important?
because mass unemployment in the manufacturing industry especially is taking place due to MNC shifting capital to low wage nations for lower costs
why is the protectionist measure to protect specific industries important?
sunrise/infant industries need time to grow
new industries need time to develop and gain economies of scale
why is the protectionist measure to protect strategic industries important?
some industries like PPE agriculture and vaccines are strategically important for a nation
why is the protectionist measure to prevent dumping important?
domestic industries must be protected from exporters who are selling below cost to dump excess supply
what is dumping?
selling below costs which is anti-competitive and unfair
what is the case against protectionism?
1) retaliation —> if you protect your industries there will be a tit for tat response —> tariffs will be put on your goods —> domestic firms struggle to export
2) trade wars —> decreasing trade —> higher prices —> less choice for consumers —> less access for firms
3) welfare loses
arguments for protectionism?
1) too much specialisation —> vulnerable to supply shocks
2) protect the environment —> massive amounts of goods are moved around the globe —> huge negative externalities
3) protecting jobs —> from the low cost NIEs —> they have an unfair advantage impossible to compete against
arguments against protectionism
1) less trade so we have less advantages of trade
- specialisation = less goods to enjoy
- competing = less efficient firms offering lower prices and higher quality
- less access = less chances for firms to grow
2) the imposition of tariffs or quotas —> drives up prices —> lowers consumer surplus —> decrease in living standards
3) provokes tit for tat responses —> no winners in a trade war
what are the four main types of trade blocs?
free trade areas
customs unions
common markets
monetary unions
what is a free trade area?
remove barriers to trade restrictions between each other
what is a customs union?
remove barriers to trade restrictions between each other
AND have common external tariffs on non members
what is a common market?
remove barriers to trade restrictions between each other
have common external tariffs on non members
AND permits free movement of labour and capital between members
what is a monetary union?
same currency
similar labour market policies
arguments for trade blocs
1) countries can specialise where they have a comparative advantage —> overall output rises —> more goods and services to enjoy and higher living standards
2) increased competition —> more efficient —> lower costs lower prices higher quality —> more choice
3) access to markets —> successful firms can expand —> gain EOS —> get down costs and make more profits
argument against trade blocs
1) overspecialisation —> vulnerable to supply shocks
2) environment
3) access to new markets —> falling demand for domestic goods —> structural unemployment
what is an injection?
going into the circular flow of income
PPQ: define the term index
reflects a comparison to the base year
