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13 International Trade (Arguments for Trade Protection (For (Anti-dumping…
13 International Trade
Arguments for
Trade Protection
For
Protect infant industries
with competitive advantage but are unable to specialise
New industries face high COP initially; unable to compete with mature industries with EOS
Protection allows infant industries to grow in size until it can specialise and take advantage of EOS
Overcome trade deficit
May result in retaliation
Best used in
short-term
Domestic producers are
BETTER OFF
Sell higher quantity
Receive higher price
Anti-dumping
Hard to determine whether dumping occurs
Can be an excuse to protect certain industries
Against
WORSE OFF
Domestic consumers
(except for subsidies)
Pay higher price
Buy smaller quantities
Higher
COP
Less price competitive exports
Cost-push inflation
Foreign Producers
Sell lower quantities of exports
May result in
retaliation
Production shifts from more efficient foreign producers to inefficient domestic producers
Violates theory of comparative advantage
Global misallocation of resources
Arguments for Free Trade
For
Enhanced Efficiency
Enhanced Economies of Scale
Absolute Advantage
Comparative Advantage
Limitations
Excessive specialisation
Vulnerable to external events
Drop in global export prices
Drop in global demand for exports
Suggests that developing countries should not expand
D.Cs have CA in
primary commodities
Should expand into
manufacturing
,
services
for
economic growth
Unrealistic Assumptions
Perfect Competition
No trade protectionism
No trade imbalance
Full employment of resources