Please enable JavaScript.
Coggle requires JavaScript to display documents.
FREE TRADE AND PROTECTIONISM - Coggle Diagram
FREE TRADE AND PROTECTIONISM
Free trade
Free said is said to take place between countries when there are no barriers to trade put in place by governments or international organisations.
Protectionism
Arguments in favour
Protecting domestic employment
Protecting the economy from low-cost labour
Protecting an infant (sunrise) industry
To avoid the risks of over-specialisation
Strategic reasons
To prevent dumping
To protect product standards
To raise government revenue
To correct a balance of payments deficit
Arguments against
May raise prices to consumers and producers of the imports that they buy.
Lead to less choice for consumers.
Competition would diminish if foreign firms are kept out of a country, and so domestic firms may become inefficient without the incentive to minimise costs. Innovation may also be reduced for the same reason. On top of this, the export competitiveness of the domestic forms may be reduced.
Distorts comparative advantage, leading to the inefficient use of the world's resources.
Lead to retaliation by other countries, with the potential for a trade "war" with escalating tariffs.
May hinder economic growth
Types of protectionism
Tariffs
A tax that is charged on imported goods
International trade subsidies
Subsidy is an amount of money paid by the government to a firm, per unit of output, lowering the firm's costs
Quotas
Quota is a physical limit on the numbers or value of goods that can be imported into a country.
Administrative barriers
"Red tape"
Health and safety and environmental standards
Embargoes
Nationalistic campaigns
Governments will sometimes run marketing campaigns to encourage people to buy domestic goods instead of foreign ones in order to generate more demand for domestic goods and preserve domestic jobs.
