Protectionism and Globalisation

Question 1

Protectionism definition

Answer 1

Protectionism is a government policy which favours the use of measures intended to prevent the free entry of imports into a country.

• Protects domestic industries and employment

Question 2

Forms of protectionism?

Answer 2

• Tariffs
• Import quotas
• Subsidies
• Soft loans
• Technical barriers to trade
• State procurement policies

Question 3

Wha are tariffs?

Answer 3

A tariff is a tax on imports.
- Increases the price of imports
- Effective when demand for a product is elastic.
- May provoke retaliation by other governments

Question 4

What are import quotas?

Answer 4

Import quotas are physical limits set on the number of units of products that can be imported into a country over a given time period.

Government usually issue licenses to importers and control the number of products for which they grant licenses.

Question 5

What are subsidies and how do they help protectionism?

Answer 5

Subsidies are a payment to a domestic producer for each unit of output produce.

Government can supply these to help high-cost home suppliers charge artificially low prices.

Question 6

How do soft loans help protectionism?

Answer 6

A government may support a weak or failing business by providing a generous loan on much softer terms than could be negotiated with private sector lenders.

Question 7

What are technical barriers to trade?

Answer 7

Technical barriers to trade include stringent demands in relation to factors such as design or safety standards.

Intention to increase the costs of production of overseas producers thereby reducing their competitiveness.

Question 8

What are state procurement policies?

Answer 8

State procurement policies is when a government favours domestic suppliers when agreeing contracts for government spending such as that on military equipment.

Question 9

What strategic decisions could protectionism provoke?

Answer 9

• Businesses may be forced to use more expensive domestic suppliers.
• Businesses with sufficient resources may establish production facilities within countries that impose import restrictions to avoid any such barriers.
• Others may lobby governments and international bodies to persuade countries to remove barriers to trade.

Question 10

Reasons for the greater globalisation of business

Answer 10

• The support of many governments and major businesses
• The falling cost of international transport and communications
• The growth of global trading blocs and the reduction of barriers to trade
• The growth of MNCs
• Increasing global incomes and growing demand for goods and services

Question 11

Why is globalisation important to a business?
Pros and Cons?

Answer 11

Pros;
- Increased sales, revenues and profits

• Cheaper resources
• Economies of scale
• Developing different products for different markets

Cons:
- Downward pressure on prices

• New producers
• Increased need for investment
• The threat of takeover

Question 12

What is a global strategy?

Answer 12

A global strategy exists when a business produces a single product (possibly with slight variants) to meet the needs of consumer across the global market