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4.3 Arguments For and Against Trade Protection

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  • What steps can the government take to mitigate the consequences of free trade?
    Tax the sectors of the economy which have an advantage and then use the money to retrain those in the sectors disadvantaged due to free trade
  • Outline FOUR reasons why trade protection could be justified
    protecting infant industries, national security, ensuring environmental standards, raising government revenue
  • Define what is meant by dumping.
    Dumping refers to the practice of firms selling products in foreign markets at below cost prices.
  • Explain why "reduced export competitiveness" might result from trade protection
    When domestic producers are protected against foreign competition, there is less incentive to lower costs and to innovate.
  • If a country suspects another country of engaging in an unfair trade practice, the "internationally accepted" practice is to...
    Raise the issue to the WTO and settle this via WTO's dispute settlement mechanism.
  • Outline FOUR reasons against trade protection.
    higher prices, less choice, domestic firms lack incentive to become more efficient, reduced export competitiveness
  • Draw out a diagram to illustrate why free trade is beneficial to an economy.
    Free trade diagram showing increased social/community surplus.
  • One of the reasons for trade protection is to raise government revenues. Using any trade protection diagram, highlight the area of government revenues as a result from trade protection.
    Tariff diagram only (all other diagrams either don't show gov't revenue or leads to an expense for governments)
  • What is the main argument of the mercantilism trade theory?
    Mercantilists argued that a country must maximize production and reduce their reliance on imports in order to grow richer.
  • Provide one real-world example to showcase how trade protection affects the well-being of consumers.
    Brexit tariffs increasing the cost of imports of flour: increased prices, decreased consumer surplus
  • Trade protection always causes a misallocation of resources. Illustrate this through the use of a export subsidy.
    Areas c & e with world price above equilibrium price
  • Using a real-world example, provide a limitation against national security as a reason to justify trade protection
    The US was close to banning TikTok from operating in the US due to "national security" concerns over how China might utilize TikTok's data
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