THE ECONOMIC ENVIRONMENT - OPEN (FREE) TRADE & PROTECTIONISM Flashcards
When does protectionism occur
Protectionism occurs when governments take measures to shield domestic industries from international competition using economic measures - In other words the government wants to protect businesses in its own country from businesses abroad, by using economic measures.
What are those economic measures (protectionism):
Tariffs - Additional taxes placed on goods that are imported, obviously this will make them more expensive and puts people off of purchasing them.
Quotas - Putting a limit on how many things can be imported (for example, they’re only going to allow 10,000 german imported cars this year etc)
Export subsidies - The government gives money to companies in their own country, so that they can be competitive, and export overseas
Embargos - Is a ban placed on goods produced in a certain country
IP laws - Stop ideas being copied
Red tape and administration - Making it awkward to import goods to a company - there is certain rules in place for selling goods
State procurement - For example: If the government has to buy trains, and the best trains are made in canada, but we also make trains in the UK, not because the UK trains are the best, but because the government want to protect jobs in the UK
What is open free trade
Open free trade occurs when there are no restrictions placed on the commercial transitions occurring between two countries. - There is no protectionism involved
What are arguments for free trade
We gain from comparative advantage specialisation and comparative advantage (leading to USP) - In the UK we are considered to be quite specialised in the production of financial services, and we’ve become good at that over the years, as well as the resources. According to free trade world output is going to increase if countries specialise in what they’re good at, and trade with other countries for what they are not so good at
Increased world output as a result of efficiency gains
Increased competition and choice - Lower prices, more innovation, improved service and quality.
Economies of scale
Transfer of skills
Transfer of technology
Increase in welfare and living standards
What are argumenrs for protectionism
‘Infant industry’ argument
Protect employment in declining industries
Protect skills in strategic industries
Conserving resources
What are the opportunitues of protectionism
Increase sales to domestic customers
Increase prices and profit margins to reinvest and create competitive advantage
What are the threats of protectionsim
Risk of retaliation, damaging export sales
Cost of imported goods rises
