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FREE TRADE AND PROTECTIONISM - Coggle Diagram
FREE TRADE AND PROTECTIONISM
protecting domestic employment
some industries will be in decline when cannot compete - lead to structural unemployment
protecting economy from low cost labour
cheap labour = low prices which causes consumer to buy more exported products. imported goods will decline
protecting infant industry
may not have economies of scale - unable to compete with foreign industries
avoid risk of overspecialization
avoid over dependent on export products
any change in world market sales will affect country's economy
strategic reason
certain industries have to be protected in case they are needed at crucial times
e.g: basic necessities, steels, agriculture, power generation
prevent dumping
selling of large quantities at low price
ruin domestic producers
protect product standards
disadvantage
difficult procedure
high cost
when a country wish to impose safety, health and environmental standards to ensure that the imports match the standard of domestic products
raise government revenue
when gov impose import taxes
correct balance of payment deficit
reduce import expenditure
will only work in short run
arguments against
distort comparative advantage
less choice for consumers
reduce competition - domestic firms become inefficicent
raise prices for consumer and producer