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International trade 3.1 - 2 - Coggle Diagram
International trade 3.1 - 2
Arguments FOR trade protection
Countries should be able to produce certain goods themselves as certain industries may be 'essential' for national defence. eg the steel industry in case the country has to defend itself in times of war = has to be independent.
Infant industry argument =
a new domestic industry that has not yet established itself in the market or achieved efficiencies in production
. They may be unable to compete with more 'mature' foreign firms if these enjoy economies scale, operating at lower costs of production.
Argument based around the idea that a country may have a comparative advantage in the production of a good but will need production at first to be able to specialise and establish itself.
Strategic trade policy = idea of protecting tech industries to help them achieve EOSs and create a comparative adv. eg Japan's success in the semi-conductors market.
Protection involves barriers to trade + interventionist supply-side policies (eg tax adv, low-interest loans, R&D financing).
Difficulties identifying the industries who could achieve EOSs and thus, need protection.
Import restirctions cause consumers to shift consumption away from imports and towards goods produced domestically. As domestic production increases, unemployment decreases. However, foreign countries may retaliate. Hence, if the objective is to increase employment the gov should rather use supply-side policies or a subsidy in a particular industry.
Developing countries often over-rely / overspecialise on the production of PRIMARY COMMODITIES. This can have its issues especially due to fluctuations. Thus, developing countries attempt to diversify their g's and s's produced. They need to use trade protection to keep out imports of g's they're attempting to produce themselves.
Arguments AGAINST trade protection
Producers + workers are the only groups that gain. The producers however have higher costs of production and lower efficiencies.
Consumers are mostly worse off due to higher prices and lower quantities available to the market (except subsidies where both are unaffected).
Inome distribution worsens due to the regressive nature of quotas and tariffs
Foreign producers are worse off due to the barrier to trade.
Global resource allocation and society are worse off in relation to the theory of comparative advantage where free trade is said to achieve the greatest amount fo production and consumption through global allocative efficiency.
Trade wars may arise if other countries retaliate as a response to trade barriers. Can have a chain reaction with increases in protectionism and serious negative effects on global output and resource allocation.
Goods that are imported may be used as inputs for goods that are thereafer exported. Hence, trade barriers may lead to negative effects on export competitiveness = lower competitiveness in export markets
Administrative barriers
Increase the 'red-tape' = time consuming = decrease imports
Impose 'environmental', 'safety' or technical standards
The idea is to discourage imports by implementing additional barriers to trade (excessively)
Customs and procedures involving inspections