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What is the Infant Industry Argument?
The idea that new or developing industries need temporary protection from international competition until they achieve economies of scale.
How can governments protect infant industries?
By using tariffs, quotas, or subsidies to reduce competition from imports.
Why do infant industries struggle against international firms?
Established firms benefit from economies of scale, allowing them to produce at lower costs and sell at lower prices.
What is a potential drawback of protecting infant industries?
Protectionism may lead to inefficiency, and firms may struggle to compete when protection is removed.
What is dumping in international trade?
When a country sells goods in a foreign market below their cost of production, often due to excess supply or subsidies.
Why is dumping harmful to domestic industries?
It makes it difficult for local producers to compete, leading to potential job losses and industry decline.
What is a challenge in proving dumping?
It is difficult to determine if goods are truly being sold below cost or if price differences result from other factors.
What alternative solution exists for dumping disputes?
Trade negotiations and agreements can be used to resolve disputes instead of protectionist measures.
How can protectionism help protect domestic employment?
By reducing imports, governments can prevent job losses in industries that struggle to compete internationally.
What is a counterargument to protecting domestic employment through protectionism?
It may only delay job losses if the industry is naturally declining due to a lack of comparative advantage.
What is structural unemployment, and how is it related to protectionism?
Structural unemployment occurs when industries decline due to international competition. Protectionism may temporarily reduce its impact.
Why might a country use protectionism against low-cost labor abroad?
To prevent domestic industries from being undercut by countries with significantly lower wages.
Which countries are often associated with low-cost labor competition?
Countries like China, India, and other developing economies with lower wages.
What protectionist measures can be used against low-cost labor competition?
Tariffs, quotas, and strict labor standards to ensure fair competition.
What is a potential downside of restricting imports from low-cost labor countries?
It may increase prices for consumers and reduce product variety.
How can protectionism be used to enforce product standards?
By imposing strict regulations on imported goods to ensure they meet safety, health, or environmental standards.
What are examples of product standards that protectionism might enforce?
Health and safety regulations, environmental standards, and quality control measures.
Why is protecting product standards important?
To prevent contaminated or unsafe products from entering the domestic market.
How can protectionism help raise government revenue?
By imposing tariffs on imports, which generate tax revenue for the government.
Why is tariff revenue especially important for developing countries?
It provides funding for public services such as healthcare, education, and infrastructure.
What is a downside of using tariffs to raise government revenue?
Higher import costs can lead to inflation and reduce consumer purchasing power.
How can protectionism help improve a current account deficit?
By reducing imports, which decreases spending on foreign goods and improves the trade balance.
What is the risk of using protectionism to reduce a current account deficit?
Retaliation from other countries may lead to trade wars, harming exports.
What is a more sustainable way to improve the current account deficit?
Increasing productivity and competitiveness in domestic industries rather than relying on trade restrictions.
Why is over-specialization a risk for some economies?
Relying too heavily on one industry makes an economy vulnerable to economic shocks.
How can protectionism help avoid over-specialization?
By encouraging the development of multiple industries instead of focusing on one sector.
What is a real-world example of the risks of over-specialization?
Oil-dependent economies suffer when oil prices fall, leading to economic instability.
What is comparative advantage
when a country, business, or individual can produce a good or service at a lower opportunity cost than others, allowing for more efficient specialization and trade.
How does inflation reduce consumer purchasing power?
Higher prices mean people can buy less with the same income, lowering living standards.
How does inflation increase costs for businesses?
Higher import costs raise production expenses, which may lead to job losses or business closures.
Over-specialisation
occurs when a country, business, or individual focuses too much on producing one good or service, making them vulnerable to economic shocks, demand changes, or resource depletion.
