Protectionism

Question 1

What is free (open trade)?

Answer 1

Free (open) trade is an economic policy of not discriminating against imports from and exports to other countries.

Buyers and sellers from separate economies may trade without the domestic government applying tariffs, quotas, subsidies or prohibitions on their goods and services.​

Question 2

Who and what are the WTO?

Answer 2

The World Trade Organization (WTO) is the only international organisation dealing with the global rules of trade between nations.

Its main function is to ensure that trade flows as smoothly, predictably and freely as possible.​

Question 3

What is protectionism?

Answer 3

Protectionism involves any attempt by a country to to impose restrictions on trade in goods and services.

The main aim of protectionism is to cushion domestic (home) businesses and industries from overseas competition and prevent the outcome resulting solely from the interplay of free market forces of supply and demand.​

Question 4

What are the three main kinds of protectionism?

Answer 4

1. Import Quotas
2. Tariffs
3. Domestic and export subsidies

Question 5

What are tariffs?

Answer 5

A tariff a tax or duty that raises the price of imported products and causes a reduction in domestic demand and an expansion in domestic supply.

Question 6

What are import quotas?

Answer 6

Quotas are volume limits on the level of imports allowed or a limit to the value of imports permitted into a country in a given time period.

Quotas do not normally bring in any immediate tax revenue for the government although if they cause domestic production and incomes to expand, there will be a beneficial impact on taxes paid.​

Question 7

What are subsidies?

Answer 7

A subsidy is a payment to encourage domestic production by lowering their costs. Well known subsidies include Common Agricultural Policy in the EU, or cotton subsidies for US farmers and farm subsidies introduced by countries such as Russia.

In 2012, the US government imposed tariffs on Chinese manufacturers of solar panel cells, judging that they benefited from unfair export subsidies after a review that split the US solar industry.​

Question 8

What are other more specialised methods of protectionism?

Answer 8

Import licensing: in this case, governments grant importers the license to import goods – these can be restricted​

Exchange controls: This form of protectionism involves limiting currencies that can move between countries (also known as capital controls)​

Intellectual property laws e.g. patents and copyright protection protecting domestic ideas and products​

Technical barriers to trade: these include product labeling rules and stringent sanitary standards. Technical barriers to trade increase product compliance costs and impose monitoring costs on export agencies.​

Question 9

What are the arguments for protectionism?

Answer 9

Infant Industry protection

Protection of strategic industries (and jobs)

Protection against import dumping (form of predatory pricing)

Question 10

What are the arguments against protectionism?

Answer 10

Higher prices for consumers (restricted market supply)

Retaliation from other countries (price wars)

Extra costs for exporters