3.1.4

• Protectionism


  The act of guarding a country's industries from foreign competition, by imposing restrictions on free trade
• If a country employed several protectionist measures

  A trade deficit would reduce
• Infant industries


  Industries which are relatively new and need support
• Protectionism is usually short term


  Until the industry develops, at which point the industry can trade freely
• Protectionism could be used to

  Correct market failure and deal with demerit goods
• Governments might want to

  Protect domestic jobs and avoid them being offshored
• Some countries might impose trade restrictions


  As a form of retaliation against trade barriers imposed by other countries
• Tariffs


  Taxes on imports to a country
• Tariffs


  Lead to retaliation, so exports might decrease
• Tariffs


  Increase the quantity demanded of domestic goods and decrease the quantity demanded of imports
• Tariffs


  Result in higher prices for consumers and a loss in consumer surplus
• Quotas


  Limits the quantity of a foreign produced good that is sold on the domestic market
• Quotas


  Lead to a rise in the price of the good for domestic consumers, so they become worse off
• Subsidies to domestic producers

  Makes domestic goods relatively cheap compared to imports
• Subsidies to domestic producers

  Encourage domestic production to increase, as shown by a right shift in the supply curve, and the average price falls
• Subsidies to domestic producers

  Might encourage a surplus to be produced, which could be wasteful
• Voluntary export restraints (VERs)

  When two countries make an agreement to limit the volume of exports to one another over a period of time
• Embargoes


  The complete ban on trade with a particular country
• Excessive administrative burdens ('red tape')

  Increases the cost of trading, and hence discourages imports
• Protectionist policies


  Could distort the market and lead to a loss of allocative efficiency
• Protectionist policies


  Impose an extra cost on exporters, which could lower output and damage the economy
• Tariffs


  Are regressive and are most damaging to those on low and fixed incomes, which could increase income and wealth inequality
• Protectionism


  Could lead to government failure
• G20


  Comprised of 20 major economies, formed with the aim of promoting international financial stability and discussing important policy issues
• G20


  Accounts for 85% of gross world product and 2/3 of the global population
• G20


  Does not include the majority of countries, and developing countries might be excluded
• G20


  Has different economic interests and situations within the countries, so it could be difficult to coordinate policies
• G20


  Has been able to strengthen the role of emerging economies and reform financial institutions
• World Trade Organisation (WTO)

  Promotes world trade through reducing trade barriers and policing existing agreements, settles trade disputes, and organises trade negotiations
• WTO


  Every member must follow the rules, and those who break the rules face trade sanctions
• Trading blocs


  Might distort world trade or adversely affect those who do not belong to them
• Conflicts between blocs


  Could lead to a rise in protectionism
• WTO


  Some countries might argue it is too powerful, or that it ignores the problems of developing countries
• World Bank


  Aims to promote economic and social progress by raising productivity and reducing poverty
• International Monetary Fund (IMF)

  Aims to promote monetary cooperation between nations, and monetary problems can be consulted in the institution
• IMF


  Aims to help free trade globally, so jobs are supported, and promotes exchange rate stability
• Bilateral trading agreements


  Agreements between two countries or groups to favour each other's goods and services
• Bilateral trading agreements


  Involve a guarantee purchase quantity or the removal of protectionist barriers
• Bilateral trading agreements


  Are advantageous as only two parties are involved, so the process is simple