Theme 4- 4.1.4 - Protectionism Flashcards
What is protectionism ?
Protectionism is the theory or practice of shielding (or protecting) a country’s domestic industries from foreign competition by taxing
imports, imposing quotas or passing laws
What are the reasons for protectionism ?
- It is human nature to want to protect what is ours
- protectionism is a governments actions to protect the businesses and interests of their own nation
- To protect their domestic industries by putting in tariffs which increase the price of imports and therefore the price factor may decrease the demand for the imports and consu7mers will more likely buy the local stuff
What is a Tariff ?
A tariff is a tax placed on an import to increase its price and decrease its demand
It can be imposed by the government to raise revenue and restrict imports
A tariff is likely to raise the final price to the consumer therefore a fall in demand for the goods
Whats the impact of a business due to Tariffs ?
Imposing a tariff will help a country to:
- protect their domestic industries from foreign competition
However:
- If a business faces ghaving to pay stiff tariffs - as if they have to pay money to import materials to make other products - they may have to reduce production and this can mean job losses as more money spent on the materials and therefore less materials and therefore psossibloe less prioduction
What are the 3 reasons that Tariffs are imposed ?
To raise tax revenue:
- poorer countries may impose heavy tariffs on imports to raise much needed funds for healthcare
For environmental issues:
- Tariffs are sometimes only placed on goods that have negative externalities such as cigarettes - sin tax - therefore countries might want to import less things that would harm hurt environment because of the high costs
Protectionism:
- Some people think that making stuff inside the country is better than importing them from outside
What are the advantages and disadvantages of tariffs ?
Advantages:
- Domestic produced goods do not incur the tariffs so there are likely to be cheaper and so sell more ?
- tariff protection allows domestic businesses to sell more becsue they gain a price advantage compared to imports
- It can ensure better job security
- It can raise important tax revenue for gov which can be possibly spent on infrastructure
Disadvantages:
- Some products, even with tariff cost added, do not put off potential customers willing to pay for unique or unusual imported products
- tariffs may just increase the costs to consumers
- Other countries may retaliate by i,posing their own tariffs on imports
Whats an import quota ?
A quota is a physical limit on the quantity of goods imported or exported for e.g. only 10,000 units a year
Imposing a import quota will increase the market share of domestic products as more of their prioducrs will be on the market
Why are quotas imposed ?
When a import quota is set it allows a country to be sure of the amount of good imported from the foreign country
When there is a tariff, if the supply curve of the forgein country is unknown, the quantities of the good imported may not be predictable, quotas are predictable because the actual amount is known
What are the uses of import quotas ?
• Import quotas are imposed to
protect jobs of domestic producers
• Import Quotas are also imposed as
a bargaining chip to be used in
negotiations on trade
• Other uses for quotas are to
protect strategic industries such as
defence and agriculture. In market
environments where imports are
on the rise, quotas are more
protective than tariffs.
What are the advantages and disadvantages of import quotas ?
Advantages:
• #1 protects domestic industries e.g. USA calling for quotas on steel imports
• #2 safeguards jobs in domestic industries
• #3 Benefit to the customers, the price of imported goods rise so domestic goods appear cheaper and better value in comparison
Disadvantages:
- When one country uses quotas then another country will use quotas and the end result is less exporting for all producers and higher prices for all consumers
- Quotas are complex for the countries using them - they require lots of paperwork
- It is difficult to measure the precise degree of protection quotas offer
What is government legislation ?
Sometimes a country will not be able to set tariffs or quotas because of trade agreements - therefore they have to come up with new ways of protecting their domestic industries from floods of cheap imports
They can do this through legislation e.g. no fakes, safety of toys etc
What are the advantages and disadvantages of government legislation ?
Advantages:
• Government legislation can be a very powerful tool in preventing fake imports into countries —> For example any toys imported into the UK must have a CE mark
• This indicates that the product conforms to EU safety regulations
• The added benefit is it means customers can trust the products that they are buying are genuine
Disadvantages:
- Every import into the uk cannot be checked —> 2% are faked so no matter how many laws a country has it cannot prevent all fakes form arriving on their shores
- the profits go to organised crime and can be in any sectors including medicine, machinery and clothing
