Protectionism

Question 1

What is protectionism?

Answer 1

Giving preference to home producers by making it harder and more expensive for overseas companies to export to your country

Question 2

Aim of protectionism

Answer 2

“Cushion” domestic businesses and industries from overseas competition

Question 3

Overall idea of protectionism

Answer 3

Advocates of protectionism believe that governments should intervene to change the pattern of international trade
Goal: to increase economic prosperity by either increasing a country’s exports or by reducing the amount imported

Question 4

Examples of protectionist trade policies

Answer 4

• tariffs
• quotas
• government regulations and subsidies

Question 5

What is open trade?

Answer 5

An economic policy of not discriminating against imports from and exports to other countries

Question 6

Benefits to open trade

Answer 6

• countries can benefit from comparative advantage
• businesses can better achieve EOS
• encourages competition and economic efficiency
• enables businesses to grow beyond their domestic borders

Question 7

What are import quotas?

Answer 7

A tariff or duty that raises the price of imported products and causes a reduction in domestic demand and an expansion in domestic supply

Question 8

What are tariffs?

Answer 8

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

Question 9

What are domestic and export subsidies?

Answer 9

A payment to encourage domestic production by lowering their costs

Question 10

Strengths of tariffs

Answer 10

+ help inefficient firms survive- benefit staff, managers and shareholders
+ without tariffs, workers would have lost their jobs
+ revenue raised from import taxes- fund public services (health and education)

Question 11

Weaknesses of tariffs

Answer 11

• make imported products more expensive

- cause long run competitive damage to the very firms they are designed to help

Question 12

Strengths of quotas

Answer 12

+ face less foreign competition
+ workers- greater job security and an increased likelihood of inflation- boosting pay rises
+ shareholders- gain via bigger dividends and higher share prices
+ if quotas prevent job loses, the government could indirectly benefit due to higher levels of employment

Question 13

Weaknesses of quotas

Answer 13

• do not generate income for government

- retaliation from other countries

Question 14

Strengths of government legislation

Answer 14

+ domestic firms face less competition- higher profits for shareholders
+ greater job security for staff

Question 15

Weaknesses of government legislation

Answer 15

• provoke retaliation- if a country bans another country’s product, the victim is likely to fight back and introduce a ban of its own against the aggressor
• reducing importer competition means higher prices and less product choice for consumers

Question 16

Strengths of subsidies

Answer 16

+ help poor by lowering prices and by preserving jobs in internationally uncompetitive industries
+ improve a country’s balance of payments by decreasing imports and increasing export sales

Question 17

Weaknesses of subsidies

Answer 17

• subsidies have to be financed- higher rates of taxation for households and for businesses operating in industries that do not receive government subsidies

Question 18

Positives of protectionism

Answer 18

+ infant industry protection- help establish themselves- including achieving EOS
+ protection of strategic industries- protect jobs, skills and capabilities
+ protection against import dumping- dumping is a form of predatory pricing which can seriously damage domestic industries

Question 19

Negatives of protectionism

Answer 19

• higher prices for consumers- particularly arising from import tariffs or quotas that restrict marker supply
• retaliation from other countries- protectionist measures often result in retaliation - such as price wars
• extra costs for exporters- protectionism that becomes widespread in global industries increases the costs facing domestic firms trying to export