protectionism

definition- policy that restricts international trade to minimise comp from foreign businesses trying to export, using tariffs and quotas so imports are more expensive, subsidies to domestic firms

Tarrif

tax or duty placed on imported good, increases price to customer

  • imports price increase, demand falls and input level falls
  • consumers either don't buy or buy domestic product, may be cheaper
  • effectiveness of tariff depends on price elasticity of imported good
  • product is price inelastic, demand for import may be limited, this happens if domestic sub are inferior

import quotas

Physical limit of imports a country can have

  • restricts supply available, prices may rise
  • consumers do without or buy domestic sub, may be cheaper
  • depends on price elasticity
  • goods may not even be available

Gov legislation

low exchange rates makes imports more expensive

safety regulations can protect consumers by excluding unsafe products

High prices and subsides

Subsidies- lower prices of domestic firms and remain competitive

higher prices- consumers pay more for imports, spend less on other things, reduces revenue

reduces competition- lead to inefficinecy and higher prices being charged for deomestic rpoducts

reduces incomes for exporting coubtries

retaliation- difficut to increases exports

Protection constrains bsuiness

some bsuinesses pressure gov to increase protection

eg. steel industry in USA

most businesses want trade barriers low, as home market isn't big enouh for this