4.1.6 Restrictions on trade Flashcards
(17 cards)
What are the arguments for protectionism
-the infant industry argument
-the sunset industry argument
-protection from dumping
-improving balance of payments
-over dependency
-job protection
-retaliation
What is the infant industry argument
short term protectionism against foreign competition with comparative advantage to allow infant industries to develop their comparative advantage
Against the infant industry argument
Frees them from the disciplines of the foreign competition so they will never achieve full efficiency
What is the sunset industry argument
Declining industries may require support to be able to decline slowly and avoid the negative effects of declining like unemployment
What is protectionism from dumping
dumping is when the price of imports is significantly less than domestic goods,
in the short term consumers benefit from the low prices but in the long term the persistent undercutting of prices forces domestic industries out of business and allows foreign competition of exploit consumers
How does protectionism improve the balance of payments
Reduces imports improving CA
Against protectionism for improving CA
Doesn’t address issues of lack of competitiveness
Isn’t an excepted reason by the world trade organisation
How does protectionism fix over dependency
Over specialisation leaves them vulnerable to changing market prices and structural declines so may aim for self sufficiency.
How does protectionism protect jobs
reduces imports so protects domestic industries and domestic employment
How may protectionism be a form of retaliation
May be used to retaliate against restrictions imposed by another country
Why might a country not want to use protectionism
Loss of economic welfare
Retaliation
Conflicts with theory of comparative advantage
How can protectionism cause a loss of welfare
Higher prices and restricted choices due to little incentive for reducing production costs the market is less efficient
What are the conflicts with comparative advantage
If countries specialise despite having comparative advantage it leads to inefficient allocation of world resources causing a decrease in global economic welfare
What are the methods of protectionism
Tarrifs, quotas, subsidies, product specifications, health and safety and environmental regulations,
competitive devaluation and more
What are tarrifs
They are a tax on imports that make them less competitive causing expenditure switching as well as creating gov revenue
What are quotas
A physical limit on the quantity of imports which increases the share of the market for domestic producers
How are subsidies a form of protectionism
grants given to domestic producers will enable lower production cots and lower prices making them more internationally competitive
