Protectionist policies

Question 1

Intro

Answer 1

• Define protectionism - Protectionism, is the economic policy of restricting imports from other countries through methods such as tariffs on imported goods, import quotas, and a variety of other government regulations.
• General argument: protectionist policies protect domestic industries but inhibit globalisation, reducing global market access and lowering domestic efficiency
• List arguments
• Quote: the Productivity Commission estimates that for every $1 increase in tariff revenue, global economic activity decreases by 64c

Question 2

P1(EU Common Agricultural Policy )

Answer 2

• From 1962 onwards.
• A unilateral subsidy and 10% unilateral tariff on EU agriculture exports (41% of EU’s federal budget)
• This establishes EU as a trading bloc also (protectionist policies are implemented on nations that aren’t members)
• Decreases cost of EU agriculture
• Global effects: decreases prices of EU agriculture for whole global market -> SoL increased
• Domestic effects:
• Australian farmers lose market share
• If EU subsidy was dropped, estimated $9bn increase in Aus farmer revenue
• LIMITATION: Limits allocative efficiency (because Australia is naturally endowed with comparative advantage in agriculture)

Tariff - price imposed on goods and services imported from overseas in order to increase the price, raise govt. revenue
Subsidy - direct/indirect payment to individuals or firms

Question 3

P2 (US China trade war)

Answer 3

WHAT HAPPENED: USA imposed tariffs on CN (on $360bn’s worth of goods and services)
Was “justified” by Trump’s accusation of CN stealing IP

Retaliation effect: CN retaliation: tariffs on $110bn of US import
Global effects: CN had lower export volumes, which halted economic growth
Domestic effects: CN and USA sought substitutes for their tariffed goods from Australia,
(LIMITATION) but because of the CN decrease in e/g, demand for Australian X decreased, leading to subpar Aus eco-growth of 1.4% in 2019

Question 4

P3 (Austrade’s Export Market Development Grants (EMDG) )

Answer 4

Austrade’s Export Market Development Grants (EMDG)

EMDG was an export incentive, not technically a barrier to trade but guidance towards Australian firms. Therefore did good for domestic efficiency
GOVT provided financial assistance for marketing directed at SME’s and infant industries.
EFFECT: Helped them achieve economies of scale and reap global market share
$40k-180k/firm/year
Every dollar spent on this scheme generated $1.53-$7.03 in net economic benefits

EVALUATION: Therefore it bolstered australia’s economy

Question 5

P4 (Aus transmission quota)

Answer 5

“Australian Transmission Quota”
Limits amount of foreign TV programs available on Australian TV to increase market share for domestic TV
On primary channels: 55% of TV between 6AM and 12AM is Australian
Secondary channels 466hrs of Aus TV per year.

Question 6

P5 (Chinese steel)

Answer 6

In order to prevent Chinese dumping of steel (dumping = when a country exports a good/service at a lower price than the importing country to gain market share
Aus implemented 11-57% tariff on Chinese steel (2016)
Avg tariff in Aus is 0.77% BUT prices have increased by 20% on steel since the industry is so heavily tariffed

Question 7

P6 (Passenger Motor Vehicle subsidy removal)

Answer 7

The gradual removal of PMV subsidies which were completely removed in 2014
Exposed the inefficient domestic market to more efficient global manufacturers
Forced reallocation of Australian resources (50k structural unemployed)
Short term economic slowdown, but long term economic growth because increased allocative efficieicny and productive capacity
long term eco-growth increases.

Quota - Import quota
An import quota is a type of trade restriction that sets a physical limit on the quantity of a good that can be imported into a country in a given period of time.

Question 8

Benefits of protectionism

Answer 8

Protection of domestic infant industries and allowing them to grow
Ensuring that a country is self-sufficient and not overly reliant on imported goods
Protection against dumping, to ensure that their domestic industries are not killed by cheaper products from overseas being sold in their country
May lead to lower unemployment by creating more domestic jobs as there is more production within the country

Question 9

Cons of protectionism

Answer 9

Overpriced goods in the domestic market as there is less competition allowing them to price products as they wish
Stagnation of technological development because protectionist policies lower incentive for companies to be competitive
Supplies being wasted to fuel inefficient industries, since there is likely another country more efficient hence those resources could be allocated into another industry