Protectionism Flashcards
(20 cards)
What is protectionism?
Government policies that restrict international trade to protect domestic industries from foreign competition.
What are the main forms of protectionism?
• Tariffs
• Quotas
• Subsidies
• Non-tariff barriers (NTBs)
• Currency manipulation
• Embargoes
What is a tariff?
A tax on imports to raise their price and protect domestic producers.
What is a quota?
A limit on the quantity of a good that can be imported.
What is a subsidy (in trade context)?
Government support to domestic firms (e.g. cash, tax breaks) to make them more competitive.
What are non-tariff barriers (NTBs)?
Rules/standards that restrict trade, e.g. health & safety laws, bureaucracy, product standards.
What is an embargo?
A complete ban on trade with a particular country.
Why might a country use protectionism?
• Protect infant industries
• Safeguard jobs
• Prevent dumping
• Protect strategic industries
• Improve balance of payments
• Raise tax revenue
• Respond to unfair competition
What is the infant industry argument?
New industries need protection until they become internationally competitive.
What is dumping?
When a country exports goods below cost or domestic price to undercut competitors.
What are the downsides of protectionism?
• Higher prices for consumers
• Reduced efficiency and productivity
• Risk of retaliation (trade wars)
• Less choice for consumers
• May breach WTO rules
• Slows global economic growth
How does protectionism lead to allocative inefficiency?
It distorts prices, keeping inefficient firms in business and misallocating resources.
How can protectionism reduce innovation?
Less competition reduces pressure on firms to improve or innovate.
Who benefits from protectionism?
• Domestic producers
• Certain workers in protected industries
• Possibly the government (if tariffs raise revenue)
Who loses from protectionism?
• Consumers (higher prices, less choice)
• Exporters (due to retaliation)
• Developing countries (if excluded from trade)
When might protectionism be justified?
• During a financial crisis or economic shock
• To develop new sectors (e.g. green tech)
• To counteract unfair trade practices
When does protectionism usually fail?
• Long-term protection leads to complacency
• When it causes inflation or trade wars
• If it protects non-competitive industries
What are the long-run impacts of protectionism?
• Less competition
• Lower global efficiency
• Higher costs
• Potential political conflict
How does protectionism conflict with comparative advantage?
It prevents countries from specialising, reducing global efficiency and output.
What is the WTO’s stance on protectionism?
The World Trade Organization encourages free trade and limits the use of protectionist policies.
