4.1.6

• What are the main reasons for protectionism?

  • Infant industry argument
  • Sunset industry argument
  • Diversify an economy
  • Raise tax revenues
  • Improve the trade balance
  • Prevention of unfair trade practices such as import dumping
  • Protect strategic industries
  • Retaliatory response
• Import quota


  A physical limit on the quantity of a good that can be imported into a country
• Import tariff


  A tax on imports that may be ad valorem (%) or a specific tax (a set amount per unit imported)
• Non-tariff barrier


  Trade barriers such as import tariffs such as import quotas, environmental regulations, trade embargoes and export subsidies
• Rules of origin


  Rules on the national source of a product e.g. a country might set a minimum percentage for locally sourced components
• Subsidy


  Payments by the government to suppliers that reduce their costs; the effect of a subsidy is to increase supply and therefore reduce the market equilibrium price
• What is a domestic subsidy?

  • A domestic subsidy is any form of government financial help to domestic businesses
  • The subsidy helps firms to lower their costs and thus become more competitive in home and overseas markets
  • Export subsidies are financial incentives to sell products in overseas markets at a profit