Lesson 4 - Protectionism And Trade Blocs Flashcards
What are sunset industries?
Industries that are declining/shrinking
What are sunrise industries?
Expanding/growing industries
What is protectionism?
The restriction of international trade using trade barriers
Why do governments engage in protectionism?
To protect domestic industries from international competition
Why may some countries argue against free trade and specialisation?
If foreign imports are cheaper and causing demand for domestic goods to decline, countries may call for protectionism
What are tariffs?
- custom duties
- tax on imports
What are the two types of tariffs?
Ad valorem = percentage of the price is paid
Specific = tax per unit quantity
What are some non-tariff barriers to trade?
- time delaying customs procedures
- quotas
- embargoes
- subsidies
What are export subsidies?
Subsidies given to domestic firms as an indirect way of protecting them
What is dumping?
Selling products at extremely low prices, below costs in order to eliminate competition
Why is dumping a problem?
Anti-competitive and unfair
Give an example of dumping
China being accused of dumping steel
What is the main argument for protectionism in the west?
Protect jobs in industries with international low cost competition
Why was it wrong to accuse China of dumping?
Having low costs isn’t dumping, it is competitive and not against WTO rules
What is the strategic trade theory?
- free trade may be better than no trade
- but it may require government intervention
- we live in a second-best world (first best is unattainable), so gov intervention can improve market outcomes
What is tit for tat retaliation?
If one country implements protectionist measures, then the country being affected will retaliate and do the same, leading to a trade war
What are the 5 types of trading blocs?
- free trade area
- customs union
- common market
- political unions
- monetary union
What is a customs union?
Common external trade barriers, but removal of barriers for countries that are members
What are common markets?
Common external tariffs, free movement of labour and capital within the trading bloc
What are free trade areas?
Remove restrictions between each other but can also trade how they want with non-members
What are monetary unions?
Single currency, similar taxation and labour market policies
What are political unions?
Fully integrated members
The European Union
- monetary union
- increased competition from member countries pushes productivity and innovation
- however in some cases, countries have had to move from cheaper imports outside of the union and to more high cost ones from within
