IBT - TARIFF, NONTARIFF, AND PROTECTIONISM

What is protectionism?

Government restrictions and support policies used to influence international trade competitiveness.

What is the main purpose of protectionism?

To protect domestic industries from foreign competition.

How can protectionist policies affect firms?

They may limit foreign producers’ access to the domestic market and affect a firm’s ability to export or obtain foreign supplies.

What is dumping?

Selling goods in a foreign market at a price lower than in the domestic market or below production cost.

What is a tariff?

A tax levied on goods when they cross international borders.

What is an import tariff?

A tax on goods entering a country.

What is an export tariff?

A tax on goods leaving a country.

What is an ad valorem tariff?

A tariff calculated as a percentage of the product’s value.

What is a specific tariff?

A fixed tax per unit of imported good.

What is a compound tariff?

A combination of ad valorem and specific tariffs.

What are nontariff barriers?

Trade restrictions other than tariffs used to limit imports or influence trade.

What is a subsidy?

Direct financial assistance from the government to boost a firm’s competitiveness.

How do subsidies affect trade?

They lower production costs and allow domestic firms to compete better.

What are other direct price influences?

• Special customs fees
• Advance customs deposits
• Minimum price requirements
• Government aids and loans

What is a quota?

A limit on the quantity of goods that can be imported or exported in a given time period.

Why do import quotas raise prices?

• They restrict supply.

• They reduce price competition.

What is a Voluntary Export Restraint (VER)?

When one country voluntarily limits its exports to another country upon request.

What is an embargo?

A complete ban on trade with a specific country.

What are common NTBs?

• Customs surcharges
• Technical measures
• Product standards
• Product characteristic requirements
• Monopolistic measures
• State trading restrictions

What are technical measures?

Standards and regulations that products must meet before entering a market.

What are monopolistic measures?

Trade restrictions through state trading or limited authorized importers.

What is “Buy Local” legislation?

Laws requiring preference for domestically produced goods.

Why are standards and labels used as trade barriers?

They may restrict imports by imposing strict compliance requirements

What are specific permission requirements?

Government approvals required before importing certain goods.

What is Pw?

World price under free trade.

What is Pt?

Domestic price after tariff is imposed (Pw + tariff).

What happens to price after a tariff?

Domestic price increases.

What happens to domestic production after a tariff?

Domestic production increases.

What happens to domestic consumption after a tariff?

Domestic consumption decreases.

What happens to imports after a tariff?

Imports decline.

What is the production effect of a tariff?

Increase in domestic production due to higher domestic prices.

What is the trade effect of a tariff?

Overall decline in imports (consumption + production effect).

What is the revenue effect of a tariff?

Government earns revenue equal to tariff × quantity of imports.

What is consumer surplus?

The difference between what consumers are willing to pay and what they actually pay.

What happens to consumer surplus after a tariff?

It decreases.

What is producer surplus?

The difference between what producers receive and their minimum acceptable price.

What happens to producer surplus after a tariff?

It increases.

What happens to total economic surplus after a tariff?

It decreases due to deadweight loss.

Tariff vs Quota difference?

Tariff raises government revenue; quota restricts quantity but does not automatically generate revenue.

Subsidy vs Tariff difference?

Subsidy lowers domestic costs; tariff raises import prices.

Protectionism vs Free Trade difference?

Protectionism restricts trade; free trade removes barriers.