Protectionism Flashcards
What is protectionism?
It is the process of restricting / limiting the entry foreign goods coming into the country. It is adopted in order to protect domestic producers from foreign competition.
What are methods of protectionism?
01) Tariffs - A tax incidence on imports
02) Quota- A physical restriction o the number of goods, no tax revenue to the government
03) Embargo - Complete restriction on a good from a country, perhaps illegal drugs, or due to war
04) Exchange rate control - The central bank of a country regulates the cash inflows and outflows of a country
05) Red tape/ Administrative burden - Imposing excessive administration burden (time-consuming long forms to fill)
What are the factors in favor of protectionism?
- Protection of infant industries
-Protection of sunset industries - Raising employment
- Avoid unfair foreign competition / DUMPING
-protection of industries from the exploitation of labor - to Correct BOP disequilibrium
What are the arguments against protectionism?
- encourage inefficient producers
-Customers may have to pay higher prices for domestic goods than if they were to import them - At the time of removal, economic problems may arise
- The local industry may try to monopolize the market and provide poor-quality products, due to the lack of foreign competition.
- New technology may not come to the market.
What is bilateral trade?
Trade between two countries
What is multilateral trade?
Trade between several countries
What is globalisation?
This is the integration of the world’s economies into one international market.
What are advanatges of globalisation ?
- Resources of different countries are used for producing goods and services that they have a comparative advantage in/most efficient in.
- Consumers can experience a wider variety of goods
- companies get access to wider markets
- promotes understanding, goodwill and networking
- Businesses and investors. get wider opportunities for investment
What are the disadvantages of globalisation?
-developed countries can interrupt the development of developing countries
- economic depression in one country can trigger adverse reactions across the globe
- Can increase the spread of communicable diseases
- Companies may face greater competition
What does the tariff diagram look like?