Protectionism 4.1.4 Flashcards
What is protectionism?
When a government protects domestic businesses and jobs from foreign competition
Tariffs
A tax placed on imported goods from other countries. It increases the price of imported goods which helps to shift demand for the product to domestic businesses
Benefits of tariffs
- protect infant industries so they can eventually become more competitive globally
- increase in government tax revenue
- reduces dumping by foreign businesses
Disadvantages of tariffs
- increases the costs of imported raw materials which may affect businesses who use these goods for production
- reduces competition so domestic firms may become inefficient and produce lower quality products
- reduce consumer choice as imports are more expensive
Quotas
A government imposed limit on the amount of a particular product allowed into the country
Benefits of quotas
- to meet extra demand, the domestic businesses may need to hire more workers which reduces unemployment
- countries are able to easily change import quota as market conditions change
- foreign countries view it as less confrontational than tariffs
Disadvantage of quotas
- domestic firms might become more inefficient over time as the use of quotas reduces levels of competition
Government legislation
Governments can impose laws to restrict certain imports to protect customers and businesses. Imports may need to meet strict regulations in order to be allowed into the country
+ Allows domestic firms to grow as they have limited competition from businesses abroad
- Can lead to retaliation from countries facing the legislation
Domestic Subsidies
Payments are given to domestic businesses to help lower costs of production, allowing for lower prices than imports.
+ Businesses remain competitive and this helps to protect jobs in the industry
- Businesses may become inefficient as they know as they know their costs are being subsidised
