Protectionism 2 Flashcards
Impact of a trade subsidy on domestic producers
Producers get the world price + subsidy. Higher outputs and revenues.
Impact of a trade subsidy on consumers
No direct effect - assuming the subsidy is not large enough to change the world price
Impact of a trade subsidy on the government
It can reduce the volume of imports by encouraging domestic production
Evaluation of the impact of a trade subsidy on domestic producers
Risk of a dependency culture
Evaluation of the impact of a trade subsidy on consumers
May face higher taxes if expensive subsidies take up a high % of government spending
Evaluation of the impact of a trade subsidy on the government
It does not generate tax revenues - cause budget pressures
Arguments against trade protectionism
- risk of retaliation
- market distortions
- higher prices for consumers
- regressive effect on income inequality
- by-passing import controls
- higher costs for exporters
What is the widely help view about import tariffs
That they can lead to a deadweight loss of economic welfare through the effects of higher prices for consumers and also the distorting effects of an import tariff on market competition, prices and the allocation of scarce resources.
Motivations for protectionism
- job protection in domestic industries
- response to dumping allegations
- raise tax revenues
- improve BoP
- environmental / market failure
What does economic nationalism describe
Policies to protect domestic consumption, jobs and investment using tariffs and other barriers to the movement of labour, goods and capital
When does resource nationalism happen
When a government seeks to gain greater benefit from its natural resources
When can resource nationalisation occur
Via outright expropriation - when a government takes away a private company’s assets - to policies such as higher taxes on the rents of mining companies, local content laws and tougher regulations
When can dumping happen
When firms sell products abroad at below costs or significantly below prices in the home market
What is dumping when firms sell products abroad at below costs
Predatory pricing which is illegal
What is dumping when it occurs significantly below prices in the home market
Implies a strategy of price discrimination - this is not illegal
