4.1.4 Protectionism

Protectionism

A theory or practice that shields a country's domestic industries from foreign competition.

Tariffs

A tax placed on an import to increase its price and decrease its demand.

Impact of Tariffs on Business

To protect fledgling domestic industries from foreign competition and to protect aging and inefficient domestic industries from foreign competition.

Reasons for Imposing Tariffs

To raise tax revenue, for environmental reasons, and to support infant industries.

Advantages of Tariffs

Domestic produced goods are likely to be cheaper, domestic businesses gain competitive advantage, and it can ensure better job security.

Disadvantages of Tariffs

High import price won't put many off, unfair competition, and tariffs may just increase prices for consumers.

Import Quota

The physical limit on the quantity of a good imported or exported.

Impact of Import Quotas on Business

They are placed to restrict the amount of trade that occurs.

Reasons for Imposing Import Quotas

Allows a country to be sure of the amount of the good imported from the foreign country and protects jobs of domestic producers.

Disadvantages of Import Quotas

Quotas often last long after the industry has matured and can lead to less exporting opportunity for all producers.

Other Trade Barriers

Subtle ways for a country to protect their domestic producers from foreign competition, such as product quality requirements and subsidies.

Technical Barriers to Trade

Technical regulations and standards that set out specific characteristics of a product such as its size, shape, design, functions, and performance.

Subsidies

A way of a government protecting their domestic markets by giving money to local producers to make their goods cheaper on the domestic market.

Impact of Subsidies

They artificially raise the prices of foreign goods relative to domestic goods, thereby reducing demand for them.