Protection Flashcards
What is protection?
They refer to measures aimed at reducing imports. The idea is to give domestic producers a competitive advantage, e.g. Tariffs.
What are the different methods of protection governments can use?
1 - Tariffs - Taxes placed on imported goods
2 - Import quotas - These place a limit on the number or value of imports allowed into the country
3 - Giving subsidies to domestic businesses - This will help domestic businesses to lower their costs which should help them compete against imported goods
4 - Regulation - This is where the government insists on certain rules which are aimed at giving domestic businesses an advantage, e.g. rules about quality standards that domestic producers can be told about first.
Explain what a tariff is and how they work
Tariffs are taxes placed on imported goods. The idea is to make imported goods more expensive to buy, so that people will buy domestic goods instead, encouraging domestic producers to supply more.
Look up the graph!
What is an infant industry?
This refers to industries that are just starting up in a country but may need some protection from more developed rivals abroad.
Whats a strategic industry?
These refer to industries that would be very important in times of war. Most governments would not want their countries to be too dependent for these products on imports from other industries. For example, Medicine, food, weapons and energy.
What are the arguments for protection? (7)
1 - Infant industry argument - e.g. manufacturing industries in less developed economies may need to be protected from more developed rivals abroad.
2 - Strategic industry argument - Most governments would not want their countries to be too dependent on other countries for these products, e.g. medicine, food, weapons, energy, incase of war etc.
3 - To reduce unemployment (Structural) - This refers to industries in decline because they can’t compete anymore against the rest of the world e.g. clothing, shoes, toys. The objective would be to protect these industries, to allow them to decline more slowly and control structural unemployment.
4 - To reduce a current account deficit - reduce the amount people spend on imports. HOWEVER most economists believe there are much better ways to deal with a current account deficit, e.g. reducing the exchange rate, to avoid retaliation.
5 - To prevent dumping
6 - To raise revenue for the government - tariffs - particularly true for poorer countries where governments find it hard to raise revenue, and may imports into these countries tend to be luxury products bought mainly by the rich.
7 - For retaliation - If other countries are putting protection on your goods, you should have the right to do the same. However it may lead to a trade war, where protection keeps getting more and more.
What is dumping?
Where countries deliberately sell at below cost prices in another country, often after receiving a subsidy from the government to try and force local businesses out of the market and increasing their own market share to they are able to increase their profit in the future. Governments may protect their industries to prevent this from happening
What is the world trade organisation? (WTO)
It is an international organisation that nearly every country of a member of. Its main objective is to promote free trade.
What are the WTO’s main roles? (2)
1 - It tries to get all of the countries to agree to reduce their tariffs between each other
2 - To stop trade disputes breaking out between countries.
