Protectionism and trading blocs

Protectionism

when a government protects domestic businesses and jobs from foreign competition

Tariff

is a tax that has to be paid when certain products are imported into a country

Import quotas

trade restrictions set by govs that put limits on the volume of products that can be imported into a country in a certain time period

Tariffs and Quotas discourage

international trade by making imported products

-          More expensive than domestic products

-          Limiting how much can be brought into a country

Tariffs and Import quotas help

domestic firms grow, as they face less competition from foreign firms

Having Tariffs and import quotas restricts

• consumer choice meaning consumers might have to pay more for products they would otherwise.

• Lack of competition removes the incentive to improve efficiency and quality

Government Legislation

can restrict international trade

Trade sanctions

strongly restrict trade with a certain country

Trade embargoes

ban trade with a country altogether

e.g of trade embargoe

USA has had an embargo against Cuba since 1962

Embargos make trade

extremely difficult/expensive. It can cause retaliation, because another country might respond by restricting trade to yours.

Domestic Subsidies

Sums of money provided by the gov to domestic firms in a certain industry (e.g: steel)

What does domestic subsidies reduce

reduces production costs – allows domestic products to have lower prices than imports

e.g of a domestic subsidie

EU’s Common Agricultural Policy gives subsidies to EU farmers to ensure they have guaranteed income without having to increase prices.

Subsidies are costly to governments meaning

people may have to face higher taxes

Trading Blocs

are associations between different governments to promote and manage trade for a particular region. Members sign agreements to remove/reduce protectionist barriers between them.

e.g of a Trading Bloc

The EU, made of 27 countries (in 2021). Single market meaning no borders between member states for movement of labour, products and capital.

What is the advantage of joining a trading bloc in terms of cost and profitability?

• The removal of trade barriers allows businesses to become cheaper suppliers for other countries in the bloc, leading to increased demand and lower costs, which could increase profitability.

How does joining a trading bloc help businesses access resources?

Businesses can more easily obtain materials, labour, and capital. Access to more skilled workers improves efficiency and production quality.

How does joining a trading bloc lead to economies of scale?

Selling to larger markets increases sales volume and lowers costs through economies of scale.

How do harmonized regulations within a trading bloc benefit businesses?

It allows firms to produce a single product to sell across multiple countries, reducing production complexity and costs.

What is the disadvantage of joining a trading bloc in terms of imports?

It can become more expensive to import products from countries outside the bloc, increasing business costs or requiring time to find new suppliers.

How can joining a trading bloc negatively affect small businesses?

Small firms may be forced out due to competition from larger firms within the bloc, which can lead to higher unemployment levels in the country.

How can joining a trading bloc affect firms outside the bloc?

They may face disadvantages, such as higher export costs due to tariffs, which can reduce demand for their products.

How can joining a trading bloc benefit firms outside the bloc?

Harmonized regulations give access to a larger market, allowing firms to achieve economies of scale and benefit from increased competition.