Protectionism

Question 1

What is protectionism?

Answer 1

when a government imposes barriers to trade on foreign firms usually to protect domestic industry.

Examples of protectionism include tariffs, quotas, non-tariff barriers (government legislation) and subsidies for domestic firms.

Question 2

What is a tariff?

Answer 2

A tax on an import

Question 3

What is a quota?

Answer 3

A physical limit on the number of imports that can come into a country in a given time period.

Question 4

What is a subsidy?

Answer 4

A payment by the government to domestic firms to lower their costs and thus will increase their competitiveness against foreign rivals.

Question 5

What are the disadvantages for firms selling to protected markets?

Answer 5

• Tariffs and non-tariff barriers such as government legislation may increase costs and lower profit margins
• Trade restrictions may reduce access to foreign markets leading to a fall in sales in those markets.

Question 6

What are two reasons why protectionist measures may have a limited impact on firms selling to those markets.

Answer 6

• The impact of a tariff will depend upon the price elasticity of demand for the good
• Firms may be able to overcome trade restrictions by re-locating production to the country or trading bloc