Trade evaluation Flashcards
Infant Industry - FOR PROTECTIONISM
Small industries do not have economies of scale to compete with companies in large industries in developed countries. Govt impose protectionism to allow small industries to grow and befit from economies of scale allowing them reduce costs of production.
Evaluation of sunset industry
- Imposing protectionism for this reason may fall in long term due to complacency
- Developing countries may not have the international power to enact such imposing protectionism on developed countries
Anti Dumping - FOR PROTECTIONISM
Where a low cost producer large quantities of products below costs price onto another country’s market. Protectionism is likely to be imposed as the dumped products will be more competitive that home products leading to industry decline/ structural U/P
Evaluation of dumping
It is extremely difficult to prove, because finding information regarding cost of production and pricing that products have been purposely does at prices below cost is a challenge for the WTO. If protectionist measures are imposed by a country die o perceived dumping, the accused country may feel wrongly targeted and retaliate heavily in return leading to tit for tat protectionism that benefits no one
Protect against U/P - FOR PROTECTIONISM
For countries that lose their comparative advantage, deindustrialisation will be the end result leading to structural U/P for workers that used to work in such industries. This imposes a large cost upon the govt who will lose a key macro obj ,and govt spending will increase as they have to retrain workers to make them more occupationally mobile. Protectionism can prevent this happening
Evaluation
If the industry is already in decline, protectionism is only delaying the inevitable, as cost of protectionism will outweigh the benefits
AGAINT PROTECTIONISM - deadweight loss
Tariffs will increase price price and create a deadweight loss of consumer surplus. This is because a a tariff is a tax on imports which increase the price on imported goods and tariffs are regressive
AGAINST PROTECTIONISM - inflationary
Can be inflationary leading to a conflict of govt macro obj. Because tariffs increase the price of imported goods which will then increase the cost of production for businesses reliant on imports like raw materials. These costs will be passed onto consumers via higher prices , cost push inflation
AGAINST PROTECTIONISM - COSTLY
Domestic subsidies, carrying a severe opportunity cost. If money is borrowed, taxes will rise in the future. If indirect taxes such as VAT or fuel duty go up to part this funding, these would hurt the poor worsening income inequality going against macro obj. If the govt fund this by cutting spending in other areas such as healthcare and education, once more negative impacts will be suffered by the poor
FOR JOINING SEM - Trade creation (against Brexit)
UK benefits from increased trade over 500m consumers. Allowing trade creation where the UK has comparative advantages . Trade creation stimulates an increase in trade leading to a more efficient allocation of resources as each country exploits their comparative advantage. Benefits the UK as net export grow w/o any costs, therefore AD increases short term growth and reducing U/P
- Brexit takes away an advantage and will lower economic growth and increase U/P as UK will pay CET and due to the size of the UK’s CAD export revenues are needed
Evaluation of Brexit ruining UK’s SEM
Argument depends on the UKs negotiation post Brexit. If the UK govt is able to negotiate a free trading position or a strong trading relationship with the EU or minimal protectionism. UK exports could still be highly demanded in the EU
