Rational for import controls Flashcards
What are 6 reasons on why we have import controls?
1) Changing comparative advantage in the global economy
2) Balance of payment adjustment
3) To protect against dumping
4) Employment protection
5) Desire to increase government revenue
6) Attempt to encourage import substitution
What does Changing comparative advantage in the global economy mean?
Reducing a country’s comparative advantage e.g. SA and England, SA have low oil prices and import tarrifs on that increases prices, reducing comparative advantage, of lower oil prices.
Why is the infant industry argument a reason on why we have import controls?
It is the desire to protect new industries that have started up
What is the Senile industry argument?
To help protect declining industries survive, by limiting the amount of foreign competition through import controls.
What is Dumping?
Using the example of 2 countries England and Somalia. England exports to Somalia a product lower than the price of the domestic firms in Somalia ( Predatory pricing) This means that the Domestic demand in Somalia will go to get English goods due to lower prices. In the LR domestic firms in Somalia will run out of business and have no demand for their goods. The English firm has less competitors so turn into a monopoly, and they can raise up price.
What is a premise in which dumping can happen?
Off loading of excess capacity at below cost price.
What response can the government influence on dumping?
They can impose a tax to reduce dumping on the overseas countries.
What does Employment Protection mean?
Fear of structural unemployment in declining sectors ( e,g, occupational immobility of labour and capital
What does Attempt to encourage import substitution mean?
Saves foreign exchange so industries, can grow, create demand and become exporters.
What are 4 policies governments can use to protect domestic firms?
Tarrifs
Quotas
Voluntary Export Restraint Agreements
Embargoes
How does a Tarrif project domestic firms?
Makes our imports more expensive, which helps domestic manufacturers to compete and raise revenue
What is a Quota?
Limits the Q of a certain good that can be imported.( any demand above the quota will be diverted to domestic products. ( but it may raise price for domestic firms making them worse off)
What is Voluntary Export restraints agreement?
is a trade restriction on the quantity of a good that an exporting country is allowed to export to another country. This limit is self-imposed by the exporting country.
What are Embargoes
This is the complete ban on trade with a particular country. It is usually politically motivated.
What is the difference between a Quota and Voluntary Export restraints agreement?
VERA ( will come to an agreement in how much to export in host country, for most likely something in return , whereas Quota is a forced limit on how much foreign exporters can export to foreign countries.
What is Import licensing systems?
There is more regulation for importing goods, so importing goods becomes more time consuming.
What is Free trade?
Free trade is the act of trading between nations without protectionist barriers, such as tariffs, quotas or regulations.
What is a benefit of free trade?
More exports could lead to higher rates of economic growth.
What is a cost of free trade?
Free trade might have contributed to some environmental damage. This is especially
from the increase in manufacturing.
