Theme 4 Topic 3 - Protectionism and Trading Blocs Flashcards
Define Protectionism
Governments try to protect domestic industry such as by using tariffs or quotas on imports or providing subsidies to domestic firms
Define Tariffs
Taxes placed on imports
What are two purposes of tariffs?
A means of restricting trade from a particular country, Reducing the amount of importation of specific goods and services
What are two impacts of tariffs on the home country?
Increases the price of imported goods so domestic producers are not forced to reduce prices, Cost of raw materials could increase if imported leading to higher production costs
What is an impact of tariffs on companies wanting to export into the countries who use tariffs?
Prices will have to increase, making products less competitive in comparison to those in the countries imposing the tariffs
Define Quota
A physical limit on how many goods can be imported into a country
What are two purposes of quotas?
Help regulate the volume of trade between them and other countries, Boost domestic production by restricting foreign competition
What are two impacts of quotas on the home country?
Reduced competition so higher sales, Prices can be higher as there is less cheap competition - leads to higher profit margins
What are two impacts of quotas on companies wanting to export into the countries who use quotas?
Exports will be lower so sales in the country using the quota will be lower, Prices will have to be lower to remain competitive - leads to lower profit margins
Define Subsidies
Payments made by the government to suppliers that reduce their costs
What are three examples of subsidies
Grants, interest free loans, tax breaks
What is the purpose of subsidies?
To encourage domestic production and consumption in specific industries
What are two impacts of subsidies on the home country?
It can help give domestic producers a competitive advantage against foreign rival firms, By helping exporting firms it can make it easier to break into foreign markets
What is an impact of subsidies on companies wanting to export into the countries who use subsidies?
More competition from home countries as they have higher output, Home businesses might have lower prices due to lower costs which increases competitiveness
Define Embargo
An extreme form of quota where imports are completely banned from a country
What are four uses of protectionism?
Protect jobs, Raise taxation revenue through tariffs, Improve the balance of import and export payments, Prevent dumping
Define Dumping
Exporting large quantities of a product to another country at a price below the normal price with the intent to have an injuring effect
What is a problem of trade barriers?
Countries often retaliate when barriers are imposed to trade
How can government regulations be used as trade barriers?
If a government insists that imported goods have to meet specific regulations and specifications it can help prevent entry of imports
Define Trade Bloc
A group of countries that sign a region trade agreement to reduce or eliminate tariffs, quotas and other protectionist
Why might countries prefer to trade with closer countries?
Cultural similarities or quicker and cheaper transport logistics
Define Free Trade Area (FTA)
Exist where member states remove all barriers between each other (e.g. tariffs and quotas), but each member state keeps different trade barriers with non-member states e.g. NAFTA
Define Single Market
Not only removes trade barriers between countries but has common laws and policies and enables free movement of workers between the countries e.g. EU
What are four opportunities of trading blocs for businesses?
Increased market size so higher sales potential, Economies of scale are possible due to increased sales volume, Easier access to resources, May enable trading bloc to negotiate more favourable terms with other countries
What are five drawbacks of trading blocs for businesses?
Countries outside bloc may retaliate against tariffs imposed by bloc, Increased competition from efficient countries in the bloc, Competition could drive down prices making it harder to make a profit, Bureaucracy and legislation, Labour regulations
