Protectionism (4.1.4) Flashcards
What is Protectionism?
Is when a government seeks to protect domestic industries from foreign competition
What is a tariff? e.g?
A tax placed on imported goods from other countries. e.g. Tennis rackets imported into the UK from China have a tariff of 4.7%
What does a tariff do to the price of imported goods and what does this result in?
Increases the p[rice of imported goods which helps to shift demand for that product/service from foreign businesses to domestic businesses
What is an infant industry?
An industry in the early stages of development in the economy
What is dumping
When a business sells their products abroad in export markets at significantly low prices
What are the benefits of tariffs?
-Protect infant industries so they can eventually become more competitive globally
-An increase in government tax revenue
-Reduces dumping by foreign businesses as they can’t sell below the market price
What are the disadvantages of tariffs?
-Increases the cost of imported raw materials which may affect businesses who use these goods for production which leads to higher prices for customers
-Reduces competition for domestic firms who may become more inefficient and produce poor quality products for their customers
-Reduces consumer choice as imports are now more expensive and some customers will be unable to afford them
What is an Import Quota?
Government imposed limit on the amount of a particular product allowed into the country
What does the Import Quota allow for the domestic businesses?
Domestic businesses face less competition and benefit from a higher market share
What are the benefits of import quotas?
-To meet extra demand, as domestic businesses may need to hire more workers which reduces unemployment and benefits the wider economy
-The higher prices for the product may encourage new businesses to start up in the industry
-Foreign countries view a quota as less confrontational to their business interests than tariffs
What are the disadvantages of import quotas?
-Quotas limit the supply of product and whenever supply is limited, the price of the product rises
-May generate tension in relationship with trading partners
-Domestic firms become more inefficient over time as the use of quotas reduces the level of competition
What are some of the other trade barriers?
Legislation and subsidies
What is Government legislation and how does it work?
-Governments can impose laws to restrict certain imports to protect customers and businesses
-Imports may need to meet struct regulations in order to be allowed into the country
What’s an example of Government legislation?
There is a UK ban on imported chicken from the USA due to the practice there of using chlorine to wash chicken carcasses
What are the benefits of government legislation?
-Allows domestic firms to grow as they have limited competition from businesses abroad
