Protectionism

Question 1

What is Protectionism?

Answer 1

This is a method of how governments protect domestic markets from foreign competition.

Question 2

State the Tools of Protection:

Answer 2

1. Tarrifs
2. Import Quotas
3. Export Subsidies
4. Embargoes
5. Excessive administrative burdens (red tape)

Question 3

What are Tariffs?

Answer 3

Tariffs are taxes imposed on imported/exported goods. However they are normally imposed on imports.

Question 4

What kinds of taxes can be made into Tariffs?

Answer 4

Specific & Ad Valorem

Question 5

Why do Governments impose Import Tariffs?

Answer 5

1. To Discourage Consumption
2. To Raise Tax Revenue

Question 6

What can render import tariffs ineffective?

Answer 6

1. If the world supply + tariffs is still lower than domestic price
2. If firms absorb the tariff

Question 7

Why do Governments impose Export Tariffs?

Answer 7

1. To raise tax revenue
2. To ensure adequate supply in the home market

Question 8

What are Quotas?

Answer 8

Quotas are limits on Imports, and normally drive their prices up/

Question 9

What are the disadvantages of employing quotas?

Answer 9

1. Does not raise tax revenue
2. Disadvantages Consumers

Question 10

What are some advantages of employing quotas?

Answer 10

1. Sell quota license

Question 11

What are export subsidies?

Answer 11

These are subsidies paid out to exporting companies to compete with imports. (Also paid to domestic firms to compete)

Question 12

What are some disadvantages of export subsidies?

Answer 12

Domestic taxpayers lose out.

Question 13

What are embargoes?

Answer 13

They are a complete ban on a country’s imports.

Question 14

Why are embargoes placed?

Answer 14

Non-prescription drugs, political issues.

Question 15

What are voluntary export restraints?

Answer 15

They are an agreement from the exporting country to limit their exports.

Question 16

What is an exchange control?

Answer 16

Restrictions on the purchase of a foreign currency.

Question 17

What are the arguments for protectionism?

Answer 17

1. Protecting Infant Industries
2. Protect Declining Industries
3. Protect Strategic Industries
4. Prevent Dumping
5. Improve terms of trade
6. Improve Balance of Payments
7. Provide Protection from Cheap labour

Question 18

How does Protectionism protect infant industries?

Answer 18

Firms in a new industry will find it hard to compete against multinationals. New industries might find efficient ways of production, giving comparative advantage, but its hard to tell whether or not which industries will become successful.

Question 19

How does Protectionism protect declining industries?

Answer 19

It can prevent cyclical unemployment, but disadvantage other industries which have recently gained comparative advantage.

Question 20

How does Protectionism protect strategic industries?

Answer 20

Like oil, weapons, fuel and food. The Government would rather be able to be self reliant on these.

Question 21

How does Protectionism prevent dumping?

Answer 21

Foreign companies may sell their products as loss leaders, and then once a monopoly is obtained prices get risen.

Question 22

How does Protectionism improve the Terms of Trade?

Answer 22

Imposing tariffs could convince importers to reduce prices to stay competitive, increasing the index.

Question 23

How does Protectionism improve BOP?

Answer 23

Trade restrictions can improve a country’s current account balance - however it can be met by retaliation from the other country doing the same exact thing.

Question 24

How does Protectionism provide Protection from Cheap Labour?

Answer 24

Idk.

Question 25

What are the arguments against Protectionism?

Answer 25

1. It prevents specialisation on the basis of comparative advantage
2. It reduces international competition, therefore increasing prices and lowering quality.
3. It reduces product diversity
4. It reduces chances for economies of scale
5. Trade wars could happen

Question 26

What does the tariff graph look like?

Answer 26