Ch26 Protectionism and Trade Barriers

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What is protectionism?

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Protectionism is where a government protects its domestic producers from foreign competition.

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What is a tariff?

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A tariff is a tax on imported goods. An example is the 10% US tax on aluminium imports.

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How does a tariff work?

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A tariff works through increasing the price of a good to consumers. The aim is to encourage them to replace imported goods with the same or similar products that are produced domestically.

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What is a quota?

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A quota is a limit on imported goods. An example is the US quotas on many different types of steel imports.

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How does a quota affect imports?

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The quota restricts the supply of imports. There is no additional revenue for the government, although the price of imported goods subject to the quota may increase if demand outstrips the quota.

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What is exchange control?

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Exchange control limits the amount of foreign exchange that can be used to buy imports. It is usually used when a country has a long-term deficit on the current account of the balance of payments.

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What is an embargo?

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An embargo is a complete ban on imports of a particular product. It is usually imposed on harmful products or weapons.

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What is voluntary export restraint?

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Voluntary export restraint occurs when there is an agreement to place a limit on exports of a product to another country.

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What are infant industries?

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Infant industries (sunrise industries) are new industries that are likely to find it difficult to compete with more established foreign industries.

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What is dumping?

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Dumping is when a product is sold in a foreign market at below the cost of production. An example is where a French manufacturer sells aluminium panels at below cost elsewhere in the EU.