Trade and Globalisation - L7 Trade Liberalisation

Question 1

What is trade liberalisation?

Answer 1

the removal or reduction of restrictions or barriers on the free exchange of goods between nations.

Question 2

What is trade protectionism?

Answer 2

refers togovernment policies that restrict international trade, in order to help domestic industries.

Question 3

Are there any potentially negative impacts of protectionism?

Answer 3

Protectionism puts less pressure on local producers to minimise their costs and maximise efficiency / productivity.

Question 4

Identify three barriers to trade.

Answer 4

Quotas – restriction on volume of imports / a limit
Tariffs – a tax on imports (example of an indirect tax)
Subsidies – financial assistance (e.g. grants or tax concessions / rebates)

Question 5

What are the short-term impacts of trade liberalisation?

Answer 5

Trade Liberalisation can have a negative impact in the short term due to higher levels of unemployment, as businesses are forced to restructure in order to reduce costs and boost efficiency. Job losses can result in the short term (structural unemployment)

Question 6

What are the long-term impacts of trade liberalisation?

Answer 6

In the long term, jobs will be created as the economy starts to grow. This is due to the effects of the increase in international competitiveness and trade, and the flow on effects this has on economic growth.

Question 7

What impact would trade liberalisation have on international competitiveness?

Answer 7

Trade liberalisation =
↑ competition =
↑ productivity and ↓ costs of production =
↑ productive capacity and aggregate supply =
higher volume of production at lower prices =
↑ international competitiveness

Question 8

Trade liberalization will result in an increase in economic growth by …

Answer 8

forcing productivity gains and reductions in cost of production in the economy, through higher levels of competition, ultimately boosting the productive capacity of the economy and increasing the volume of production at lower prices, This increases the purchasing power of consumers and leads to increasing levels of economic activity, while ensuring the growth is sustainable as it reduces cost inflationary pressures in the economy.