Trade Restriction

Reasons why government imposes trade restrictions

• protects domestic industries

• protects employment, reduces unemployment

• correct balance of payment deficits

• infant companies

• dumping

• national security

• public health & safety

introduction to disadvantages of the government imposing trade restrictions

• protects domestic industries HOWEVER

• creates several significant disadvantages for;

→ consumers

→ businesses

→ international market

Cons in trade restrictions

• higher prices for consumers

• limited consumer choice

• reduced competition

• retaliation from other countries

• slower economic growth

• misallocation of resources

• corruption and bureaucracy

protect domestic industries points

• protects domestic industries that are unable to compete with large & established foreign firms

• large companies benefit from economies of scale which allows them to produce goods @ lower costs

• results in local businesses struggling to survive

• government imposes tariffs and quotas to reduce foreign competition & allows for domestic firms time to compete

eg; malaysia’s protection of automotive industry (perodua & proton) via high import duties on foreign cars

protect employment & reduce employment points

• cheap imported goods flood the market → domestic firms lose sales/forced to cut production → leading to job losses

• TR maintain demand for locally produced goods therefore preserving jobs

eg; restricting imports of cheap textile from china & bangaldesh sustains employment in local manufacturing companies

correct payment deficit points

• country imports more than it exports → experiences trade deficit → currency & economy is weakened

• limiting exports via tariffs & quotas reduces outflow of money & stabilizes balance of payments

eg; increasing taxes on imported luxury goods can discourage excessive spending on foreign products

infant industries

• new industries require time to develop;

→ skills

→ technology

→ efficiency

• temporary protection allows them to grow w/o being immediately outcompeted by established foreign firms

eg; government restricts foreign electric vehicle imports to allow domestic EV industry to develop

dumping points

• foreign firms sell products @ extremely low prices (sometimes below costs) to eliminate competition & have more appeal → creates unfair market conditions

• government executes anti-dumping duties to ensure fair competition

eg: cheap imported steel sold below cost can harm local producers

national security points

• defence, energy & advanced technologies industries are crucial to country’s safety

• relying heavily on foreign suppliers pose risks during political conflicts

• governments restrict trade in sensitive goods to maintain independence & security

protect public health & safety points

• retaliate against other countries’ trade barriers

eg; banning contaminated food imports protects consumers → retaliatory tariffs could be used in response to unfair trade practices by other nations