LS3 Flashcards
What is free trade
Trade without restrictions
What is protectionism?
The policy of restricting imports through trade restrictions
Developing countries tend to be protectionist
What are the reasons for trade restrictions?
Protect national security Public safety Tax revenue Protect domestic industries and jobs Retaliation Prevent dumping
Protect national security
Donald trump uses national security as an excuse to impose tariffs on steel and aluminium
Chinese technology like huawei leads to a risk of attacks, 5G infrastructure
Public safety
Some goods can be banned or restricted like firearms in the UK
Food can be a risk
Fukushima accident with Japanese food
Chicken is restricted from the USA because of farming techniques and chlorination
Tex revenue
Developing countries can raise money from tax
Protect domestic industries?
Infant industries and emerging industries need protection from overseas competition when forming, like tariffs
However a lack of competition can lead to inefficiency like South Korean electronics
What is the infant industry argument?
Developing countries will have worse quality and efficiency so will struggle to compete overseas so barriers help them from
However consumers pay higher prices for worse goods and there is no incentive to improve
Retaliation?
Can be used to punish a country to reduce their exports or serve as a warning.
Trump and China
EU and China targeted soybean, corn, Harley Davidsons due to American steel tariffs
Prevent dumping
Exporters can sell below equilibrium price and at a loss to reduce stock or wipe out competition from domestic producers so they can dominate the market
Leads to job losses and fall in GDP
Can be an excuse
What are the methods of protectionism
Tariffs: make it more expensive to import or export which raises revenue and helps infant industries(China with soybean tariffs)
Quotas: limit the number of imports to protect
Domestic subsidies: encourage growth help industries compete, increases employment
Embargo’s: official ban on product if it is unsafe or for legal reasons. Like Iranian oil in USA
Admin barriers: inspections of quality, checks, paperwork’s, packaging requirements, environmental restrictions
Costs more and takes more time
What are the impacts of protectionism
Export discipline to maintain quality compared to other countries. Government can punish or reward those who are lacking
Producers receive support until they can compete without support
Consumers have reduced choice, quality and higher prices
Workers have increased job security but production costs can be higher so wage cuts or fire
Governments gain revenue, protects industries, gain political support(trump). But can be costly
