Paper 1- Theme 4.1- Globalisation Flashcards
Define protectionism
Key aim of protectionism
- any attempt by a country to impose restrictions on trade of goods and services
- main aim is to protect domestic business from overseas competition
Types of protectionism
- tariffs
- import quotas
- domestic subsidies
- government legislation
Reasons for protectionism
- protect employment in domestic industries
- protect new declining, fledging and infant industries (government may need to protect them while they develop)
- protection of strategic industries (in future will be profitable)
- protect culture
- respond to recession
- respond to trade deficits - lead to weaker exchange rate
arguments against protectionism
- higher prices for consumers, increased poverty
- retaliation from other countries
- –> widespread protectionism increase costs of exporting
- inefficiency in production and allocation of government resources may damage economy for sake of saving jobs
Define tariff
tariff is a duty that raises the price of imported goods to make domestic products more appealing
Pros and cons of tariff
PROS:
- create revenue of imported goods
- protects declining, infant and fledgling industries from foreign comp.
CONS:
- imported more expensive for consumers (lower $OL)
- firms may become reliant on tariff and so won’t drive for efficiency
- quality of domestic products may be lower than imports
- damage international relationships (possible trade war)
Define a quota
annual limit on the quantity or value of imports allowed into a country to be sold
Pros and cons of quotas
PROS:
- protect domestic suppliers & their workers
- government receive more tax capital as employment rate is higher
- prevent dumping
CONS:
- limit consumer choice
- because supply decrease, foreign products become more expensive
- restricting competition means less renovation and improvements in the industry
Define government legislation
rules and laws set out by government in order to protect the businesses, environment and health
Define domestic subsidies
-sum of money given by the government to the producers of a certain product or in a certain industry
pros are cons of domestic subsidies
PROS:
- encourage domestic production as unit costs lowered
- improve a country’s balance of payments as increases exports (due to being able to lower the prices but maintain the same profitability)
- help inefficient firms by stimulating demand for them
CONS:
- finance has to come from somewhere else (e.g. possibility higher tax)
- other factors affect what consumers buy, not just lower price
- artificial inflation of competitiveness, reduces inefficiency
- reliance
define dumping
when firms sell their excess products in foreign markets significantly below prices in the home market, causing other producers to struggle
define an embargo
official ban of any commercial trade with another country
Define a trade bloc
a group of countries from specific regions that form an agreement to promote and allow free trade
Positives to businesses of joining a trade bloc
- beneficial pressures of widespread competition in the trade bloc (pressures to be efficient)
- increased specialisation of countries due to access to different services across borders
- —> higher quality products at lower cost
- smaller countries get a say in global trade agreements about how their businesses are affected
- free movement of labour (access to workforce) and goods (ease of travel)
- —> lower distribution costs
- external tariff walls to the trade bloc protect businesses from worldwide competition
- larger market to sell to
- economies of scale in production, if all countries have same
Negatives to businesses of joining a trade bloc
- increased competition due to freer trade
- increased dependence on other countries performance
- countries outside of trade bloc may impose retaliation tariffs
- domestic businesses can be exploited by large MNCS within the trade bloc
- rules to govern the market may be bureaucratic (slow growth), or may not be suited to your business
- common regulation may restrict trade growth
- immigration - impact on welfare state–> migrants draining resources of health care, education
different types of trade blocs
single market
free trade area
customs union
Describe the rules of a free trade area
- no tariff between members
- no external tariff
- increase trade of goods and services between each other
- free to negotiate own trade deals with non member countries
Describe the rules of a customs union
- no tariff between members
- common external tariff
- trade deals with non members apply for all countries in the union
- no customs border checks of goods
Describe the rules of a single market
- no tariff between members
- common external tariff
- common rules and regulations
- freedom of moving goods and people
- sometimes common currency
(more strict then customs union)
Key information about the EU
- combination of a single market and a customs union trade bloc with 27 countries
- labour, goods and capital allowed to move freely (no custom checks or customer duties)
- sets large amounts on employee and customer rights that give businesses a “level playing field”
How to join the EU
Copenhagen criteria
- must have a functioning economy that can cope with large pressures from the EU
- be able to guarantee democracy, the rule of law and respect for human rights
- ability to meet needs of what a member must do
Key information on the ASEAN trade bloc
- free trade area of 10 countries e.g. Thailand, Singapore, Philippines
- very high economic growth
- access to each countries workforce and consumer base
- very dependent on China, also India and South Korea
Key features of the NAFTA
-worlds largest Free trade area with 3 member countries
- tariffs eliminated- therefore lower costs of imports and exports
- increased GDP of all countries
- put lots of Mexican farmers out of business
- bigger markets for businesses to operate in