4.1.4 Protectionism

Question 1

What is protectionism?

Answer 1

involves any attempt by a country to impose restrictions on trade in goods and services

Question 2

Tariffs

Answer 2

raises price of imported goods and limits the value of imports permitted into a country

Question 3

Export subsidies

Answer 3

a payment to encourage domestic production by lowering their costs
or involve government aid for domestic businesses facing financial problems

Question 4

Why use protectionism?

Answer 4

• protects domestic market
• more local growth opportunities
• lower imports - help reduce import levels and allow the country to increase its trade balance
• response to chronic trade gap and deficits
• protect fledgling infant sectors
• boosts economy due to rise is domestic production

Question 5

Disadvantages of trade protectionism

Answer 5

• stagnation of technological developments - domestic business don’t need to worry about foreign competition so they have little incentive to innovate or invest in R+D for new products
• limited choices for consumers - access to fewer goods due to limitation of foreign goods
• Increase in prices due to a lack of competition - consumers will have to pay more with no significant improvement in product
• economic isolation - political and cultural isolation

Question 6

Example of trade protectionism

Answer 6

USA

• he placed bn of $’s of goods from around the world, especially China
• wanted to cut the trade deficit with China

Question 7

What is trade deficit?

Answer 7

the difference between how much one country buys from another country compared to how much it sells

Question 8

Why do governments use trade protectionism?

Answer 8

• protect key politically strategic industries
• raise extra revenues for governments with budget deficits
• response to a recession/stagnant domestic demand

Question 9

3 main kinds of trade protectionism

Answer 9

• import quotas
• tariffs
• domestic and export subsidies

Question 10

What is an import quota?

Answer 10

-quantitative limits on the level of imports allowed or a limit the value of imports permitted into a country in a given period of time

Question 11

Drawbacks of quotas - government

Answer 11

• doesn’t generate any revenue for the government

- can distort international trade

Question 12

Benefits of quotas - business

Answer 12

• if they cause domestic production and incomes to expand, there will be a beneficial impact on taxes paid
• protect industries from global competition
• boosts local investment
• creates jobs

Question 13

What is a tariff?

Answer 13

• raises on the price of imported products and causes a contraction in domestic demand and an expansion in domestic supply
• Improves a nations trade

Question 14

Domestic subsidy

Answer 14

involves government help for domestic businesses facing financial problems

Question 15

Export subsidy

Answer 15

A payment to encourage domestic production by lowering their costs
-encourages exports of goods and discourage sale of goods on the domestic market through direct payments, low coast loans for exports

Question 16

Benefits of tariffs - governments

Answer 16

• government receive the money by charging the tax
• can serve as an opening point for negotiations between two countries - good way of brining nations together
• can help stabilise and regular its own industries

Question 17

Benefits of tariffs - businesses

Answer 17

• domestic producers will benefit - makes more competitive compared to imports
• protect domestic jobs and businesses

Question 18

Drawbacks of tariffs - governments

Answer 18

• can antagonise existing issues between governments, leading to political and economic consequences
• UK export firms will face higher tariffs and they could suffer falling demand

Question 19

Drawbacks of tariffs - businesses

Answer 19

• increase costs of imports, leading to higher prices for consumers
• restriction of competition encourages inefficient firms -may nit race incentive to innovate

Question 20

drawbacks of quotas - business

Answer 20

• can enhance monopoly growth for those with import licenses

Question 21

Benefits of quotas - governments

Answer 21

• allows for fdi to occur
• boosts local investment
• creates jobs

Question 22

Benefits of subsidies - government

Answer 22

• helps to lower prices and control inflation
• greater supply of goods - governments provide an incentive that allows more access to their population to goods and services such as water, food and education

Question 23

Benefit of subsidies - business

Answer 23

-prevents the long-term decline of industries - fishing and farming

Question 24

Drawbacks of subsidies - government

Answer 24

• difficult in measuring success - hard to quantify subsidies
• higher taxes - impose higher taxes so the government can subsidise industries

Question 25

Drawbacks of subsidies - business

Answer 25

-higher taxes - impose higher taxes so the government can subsidise industries

Question 26

What is dumping?

Answer 26

Selling off surplus stock on a foreign market at below cost which puts domestic businesses in foreign market at a disadvantage